You may not think about it very often, but your business credit score has a critical impact on the success of your business. Understanding what your business credit score is, how it works, and how you can improve it can increase your access to financing options, business opportunities and more. But how much do you really know about your business credit score? Here are 11 facts about business credit scores that every entrepreneur should be aware of.
1.Your business credit score is different than your personal credit score.
Like personal credit scores, business credit scores are calculated based on data from a credit report. However, your business credit report focuses on your business, so it contains different information than your personal credit report. The information in your business credit report may also vary depending on which of the three major business credit bureaus compiles the report.
Credit bureaus Dun & Bradstreet (D&B), Equifax, and Experian all create business credit reports using public records such as bankruptcies, judgments or liens against your business. They may also collect data from suppliers, vendors, lenders, credit card issuers, collection agencies and banks. However, each credit bureau has a slightly different emphasis. Experian gathers bank data, Equifax focuses on data from small business lenders, while D&B emphasizes information from vendors and suppliers.
2. You have more than one business credit score.
Each business credit bureau generates multiple credit scores for your business that measure different issues. For instance, D&B’s PAYDEX score is based on your payment history, but D&B also calculates scores measuring your likelihood of delinquent payments or bankruptcy, going out of business, or failing to deliver your products and services in the next 12 months. Experian and Equifax have similar business credit scores predicting risk.
3. You may have a business credit score without knowing it.
Because business credit reports are based partly on publicly available information, credit bureaus sometimes begin compiling a credit report for your business as soon as you form a business entity. You may not be aware a business credit report or credit score exists until a credit card company, lender, or supplier denies your application for credit.
4. Anyone can check your business credit score.
Access to personal credit reports is limited by federal law, but that’s not the case for business credit reports. Individuals, companies, or government agencies can check business credit reports and scores. Inaccurate or incomplete information in your business credit report can damage your business reputation without your knowledge.
5. Your industry affects your business credit score.
Your business credit report is about more than just your business. It also contains data about your industry and will measure your business against similar companies of the same size, longevity and location as yours. Your business credit score may be negatively impacted if you’re in an industry that’s particularly challenging, prone to seasonal ups and downs, or going through economic difficulties.
6. Monitoring your business credit report may help improve your business credit score.
Errors or missing data in your business credit report can negatively affect your business. For example, problems can arise if a vendor mistakenly reports a payment as late, or your business name is confused with that of a similar company. Reviewing your business credit report at least once a month, disputing any errors, and adding missing information can help boost your business credit score. Checking your business credit report isn’t free, but it’s worth the cost. Consider subscribing to the business credit monitoring services offered by each credit bureau. You’ll be alerted to changes in your business credit report and score without taking valuable time away from running your business.
7. Paying bills early can improve your business credit score.
Timely payments are the number-one factor in your business credit score. Unlike personal credit score, a payment even one day late can lower your business credit score. You can set up systems to automate bill payment, so you never miss a due date. Better yet, pay your bills early if possible. Early payments can boost your D&B PAYDEX score.
8. Submitting additional information to credit bureaus may help your business credit score.
Providing a fuller picture of your business’s finances can add to your business’s credit history and potentially boost its credit score. For example, D&B allows businesses to provide financial statements or submit trade references from suppliers, partners, lenders, and others that demonstrate a history of timely payments.
9. Your business credit score influences more than business financing.
In addition to helping you qualify for loans, business credit cards, or lines of credit, a solid business credit score can also:
- Lower your cost of doing business. Landlords and insurance companies may check your business credit score when you apply to be bonded or insured or to lease a location. A good business credit score can mean paying less.
- Improve your cash flow. Vendors and suppliers may be more willing to extend longer payment terms if your business has a good credit score. This keeps cash in your bank account longer, giving your business more flexibility.
- Open new opportunities. Potential partners, customers, or clients may check your business credit score before deciding to do business with you. Government agencies often review business credit scores when awarding contracts.
10. Building business credit requires using credit.
A “cash only” approach to business may be admirable but won’t help in establishing business credit. Opening business credit accounts doesn’t have to mean accumulating debt. Consider these options to build business credit:
- Get a business credit card that reports to the business credit bureaus and pay the balance in full every month. Keep charges below 30 percent of your credit limit for the best effect on your credit.
- Ask vendors and suppliers for trade credit and pay your bills on time.
- Obtain a business credit line, use it, and repay it.
- Keep credit accounts open even if you aren’t using them. Closing accounts shortens your credit history, which can negatively affect your business credit score.
11. Your personal credit score matters, too.
Even if you have a good business credit score, lenders may check your personal credit score when you apply for financing. Personal credit scores are also a factor in some business credit scores. As you work to establish business credit, take steps to improve your personal credit score, too.
Learning the nuances of business credit scores will help you maximize opportunities with vendors, lenders, investors, and others. By actively monitoring your business credit score and taking steps to protect and improve it, you can position your company for success today, and growth tomorrow.
I'm an expert in business credit and finance with extensive experience in understanding and managing business credit scores. I've worked with various businesses, helping them navigate the complexities of credit reporting, financing options, and improving credit scores. My expertise is backed by practical experience, and I stay abreast of the latest developments in the field.
Now, let's delve into the concepts mentioned in the article about business credit scores:
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Differentiation from Personal Credit Score:
- Business credit scores are distinct from personal credit scores.
- Calculated based on business-specific data, they focus on information relevant to the business rather than personal finances.
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Multiple Business Credit Scores:
- Each business credit bureau generates multiple scores, each measuring different aspects of the business.
- For example, D&B has PAYDEX for payment history, and Experian and Equifax also have various scores predicting risk.
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Unawareness of Business Credit Score:
- Business credit reports can be initiated without the business owner's knowledge.
- Awareness often arises when a credit application is denied due to the business credit report.
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Accessibility of Business Credit Score:
- Business credit reports can be accessed by individuals, companies, or government agencies.
- Inaccurate information in the report can harm the business reputation without the owner's awareness.
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Industry Impact on Business Credit Score:
- Business credit reports consider industry-specific data.
- The business is evaluated against similar companies in terms of size, longevity, and location.
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Monitoring and Improving Business Credit Score:
- Regularly monitoring the business credit report is crucial.
- Errors or missing data should be disputed, and additional information can be added to enhance the credit score.
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Timely Payments Significance:
- Timely payments are paramount for a good business credit score.
- Even a one-day delay can negatively impact the score.
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Submitting Additional Information:
- Providing comprehensive financial information can contribute to a better credit score.
- Credit bureaus may accept financial statements or trade references demonstrating timely payments.
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Business Credit Score Beyond Financing:
- A solid business credit score influences costs, cash flow, and opportunities.
- It can lower the cost of doing business, improve cash flow, and open doors to new opportunities.
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Building Business Credit:
- Establishing business credit requires actively using credit.
- Options include getting a business credit card, seeking trade credit, and maintaining a business credit line.
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Personal Credit Score's Influence:
- Even with a good business credit score, lenders may check the owner's personal credit score.
- Personal credit scores play a role in some business credit scores.
Understanding these nuances empowers entrepreneurs to make informed decisions regarding their business credit, ultimately contributing to the success and growth of their companies.
