Business Credit Score: What Is It, Why It Is Important, & How to Improve It?

27 July, 2022
16 min
Brett Johnson, AVP, Global Enablement

Table of Content

Key Takeaways
What is a Business Credit Score?
What’s the Difference Between a Business and Personal Credit Score?
Why Is a High Business Credit Score Important?
How is Business Credit Score Calculated?
What Are the Factors That Affect Your Business Credit Score?
How to Improve Your Business Credit Score?
Wrapping Up
FAQs on Business Credit Score

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Key Takeaways

  • A business credit score is a numerical rating used to evaluate the creditworthiness of a company.
  • A high business credit score increases borrowing power, unlocks better financing options, and attracts favorable terms from lenders.
  • Business credit scores are determined based on age of your account, payment history, credit history, and various other factors.
  • Making payments promptly, maintaining a low credit utilization ratio, having a varied credit portfolio, and consistently checking your credit reports can enhance your business credit score.
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What is a Business Credit Score?

A business credit score serves as a vital indicator of a company’s creditworthiness and financial health. It plays a crucial role in securing loans, insurance, and obtaining higher credit limits. Maintaining a strong credit score empowers your company with faster growth opportunities and enhanced financial flexibility.

When it comes to evaluating a business’s creditworthiness, credit rating agencies employ various scoring systems. For instance, renowned credit companies like D&B utilize the Paydex scoring system, while Experian relies on Intelliscore Plus.

Your business credit score is tied to your employer identification number (EIN), which serves as a unique 9-digit code for credit agencies and authorities to identify different companies for tax purposes. Think of it as the social security number for your business.

What’s the Difference Between a Business and Personal Credit Score?

While both scores influence your borrowing capacity and creditworthiness, they possess separate assessment criteria and measure different things. Your personal credit score assesses your personal repayment ability, while a business credit score evaluates your company’s aptitude to meet financial obligations. Let’s explore each one in more detail.

Business Credit Score

Personal Credit Score

Evaluated based on your business’s payment history, credit utilization, public records, and industry-specific data.

Assesses your personal payment history, credit utilization, credit mix, and public records.

Typically uses a numeric scale ranging from 0 to 100, with higher scores indicating lower credit risk.

Generally follows a numeric scale ranging from 300 to 850, with higher scores indicating lower credit risk.

Linked to your business’s employer identification number (EIN) and associated with your business name.

Tied to your social security number (SSN) and associated with your personal name.

Primarily used by lenders, suppliers, and business partners to determine your business’s creditworthiness.

Mainly used by lenders, credit card companies, and landlords to assess your personal creditworthiness.

Why Is a High Business Credit Score Important?

In today’s fiercely competitive market, a high business credit score holds tremendous significance for your company’s success. The advantages of maintaining a strong credit profile are far-reaching and can unlock numerous opportunities for growth and financial stability.

A higher company credit score paves the way for better financing options and increased borrowing power. Lenders view businesses with solid credit scores as less risky, making it easier for you to secure loans and access the capital needed to fuel your business’s expansion. Not only that, but favorable terms from lenders, such as lower interest rates and flexible repayment terms, become more attainable with a strong credit standing.

Additionally, a solid credit score demonstrates your ability to meet financial obligations, instilling confidence in potential investors and stakeholders.It can serve as a pivotal factor when it comes to securing contracts and winning new business. Many clients and partners consider a company’s creditworthiness as a crucial factor in their decision-making process, as it reflects stability and reliability.

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How is Business Credit Score Calculated?

Calculating a business credit score involves a detailed analysis of diverse financial metrics that collectively depict a comprehensive image of a company’s creditworthiness, offering insights into its capacity to handle credit and fulfill financial commitments.

Lenders, credit agencies, and financial institutions take into account multiple factors when determining a business’s credit score.

While the specific calculation methods can differ among credit agencies, here’s a breakdown of how some of the top agencies calculate business credit scores:

1. Experian

Experian utilizes the Intelliscore Plus model to assess a business’s creditworthiness. This scoring model considers factors such as payment history, credit utilization, public records, industry-specific data, and statistical information. The credit rating is typically presented on a scale ranging from 0 to 100, or in the case of the newer version (Intelliscore Plus 3), from 300 to 850, with higher scores indicating lower credit risk.

2. TransUnion

TransUnion employs the VantageScore model to evaluate company credit scores. This model weighs various factors, including payment history, credit age and type, credit utilization, total balances, recent credit behavior, and available credit. The resulting credit rating falls within the range of 300 to 850, with different rating categories indicating the level of creditworthiness.

3. Dun & Bradstreet (D&B)

D&B, a prominent credit agency, uses the Paydex scoring system to determine business credit scores. The Paydex score ranges from 0 to 100, with higher scores indicating a better creditworthiness. D&B assesses a company’s payment history with lenders, suppliers, and other entities to calculate the credit score.

4. Equifax

Equifax provides three distinct credit scores that reflect different aspects of a business’s creditworthiness. The payment index score evaluates the payment history over the past year, with a scale from 0 to 100. The credit risk score, ranging from 100 to 992, considers factors such as company size, credit history, and credit limits to determine the likelihood of late payments. The business failure score, on a scale of 1000 to 1880, predicts the probability of a company failing within a year based on various data points.

5. NACM (National Association of Credit Management)

NACM utilizes a comprehensive approach, considering 42 different variables to calculate a business credit score. Their evaluation incorporates member trade data from the past 12 months and leverages two Experian scores for a more nuanced understanding of credit risk.

Each credit agency has its own unique methodology and scoring system, but all aim to assess a business’s creditworthiness accurately. These scores serve as vital tools for lenders, suppliers, and partners to evaluate the financial stability and reliability of a business.

What Are the Factors That Affect Your Business Credit Score?

Lots of things can change your business credit score. To keep it high, you need to know these things. If you understand them, you can do things to manage your credit better and stay financially strong. Now, let’s check out the top factors that can affect your business credit score:

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1. Age of your accounts

If your company is relatively new, it may have limited financial credibility, potentially leading to a lower credit rating. However, as your business establishes a track record of taking credit and making timely payments, your creditworthiness improves over time.

2. Credit and payment history

Consistently making payments on time and managing credit responsibly enhances your credibility. Conversely, defaulting on loans or business credit cards can significantly lower your credit score, signaling a higher risk to lenders and suppliers.

3. Credit utilization ratio

The credit utilization ratio refers to the percentage of your available credit that you’re utilizing. Maxing out your credit limits frequently can negatively impact your credit rating, as it suggests a higher dependency on borrowed funds or an inability to manage credit effectively.

4. Accuracy of credit reports

Credit agencies may occasionally make errors on your business credit report, which can adversely affect your credit score. It is crucial to regularly monitor your credit reports to identify any inaccuracies.
By understanding these factors, you can take strategic measures to improve and maintain a strong company credit score. In the next section, we will discuss the actionable steps you can take to enhance your business creditworthiness.

How to Improve Your Business Credit Score?

Improving your business credit is a vital endeavor that can unlock numerous benefits, including better financing options, favorable terms with suppliers, and enhanced credibility in the marketplace. Here are some actionable steps you can take to bolster your business credit score:

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1. Pay bills on time

Ensure that you meet payment deadlines for loans, credit cards, and other financial commitments. Consistently demonstrating your ability to manage credit responsibly will positively impact your credit score.

2. Maintain a low credit utilization ratio

Strive to keep your credit utilization ratio between 30% – 50% of your total available credit. By utilizing only a portion of your credit limit, you showcase responsible credit management and minimize the perception of financial risk.

3. Establish a diverse credit mix

Having a diverse range of credit types, such as loans, lines of credit, and business credit cards, can contribute positively to your credit score. This demonstrates your ability to handle various forms of credit and indicates a well-rounded financial profile.

4. Monitor your credit reports

Regularly review your business credit reports from different credit agencies to identify any errors or discrepancies. Promptly address any inaccuracies by contacting the credit agency and providing supporting documentation to rectify the issues.

5. Nurture positive supplier relationships

Cultivating strong relationships with suppliers who report payment history to credit agencies can be advantageous. Ensure timely payments to suppliers and negotiate favorable payment terms whenever possible. Positive supplier feedback contributes to a robust credit profile.

6. Communicate with creditors during financial challenges

If your business faces temporary financial difficulties that may impact your ability to meet payment obligations, proactively communicate with your creditors. Explaining your situation and working out alternative payment arrangements can help minimize the negative impact on your credit score.

Wrapping Up

Maintaining a healthy business credit score is not only crucial for accessing financing and favorable payment terms but also for establishing trust and credibility in the business world. A high credit score opens up a world of opportunities, providing businesses with the financial flexibility they need to thrive and grow.

Additionally, having a reliable credit scoring model in place allows companies to make informed decisions when evaluating the creditworthiness of potential clients or partners. By prioritizing the management of their creditworthiness, businesses can reap a multitude of benefits. A robust credit scoring model allows for accurate evaluation of a company’s creditworthiness, providing essential insights into its financial stability and risk profile.

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FAQs on Business Credit Score

1. What is a good score for business credit?

A good business credit score typically falls within the range of 80-100 (on a scale of 0-100).

2. Is credit score important for business?

Yes, a good credit score is important for businesses. It determines your ability to get credit, secure funding, and get good deals from suppliers.

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