Credit scores help prospective lenders evaluate the risk they assume when they offer you financing. Just as lenders may review your personal credit reports or scores when you apply for a credit card, mortgage, or auto loan, lenders may review business credit scores when you apply for small business financing.
The 2019 Federal Reserve Small Business Credit Survey found that 13% of business owners used just business credit when applying for financing, and another 41% used both personal and business credit.
While most people are familiar with personal credit scores, business credit scores are often a mystery; it can be helpful to understand how they work.
Business vs. Consumer Credit Scores
Your business and personal credit scores are similar in that they both fall within a range. Personal credit scores created by FICO or VantageScore commonly use a scale of 300-850 where a high number is considered a good score because it indicates less risk to the lender.
The ranges for business credit scores may be much different than consumer scores, depending on the score used. Here are some common examples:
- Dun & Bradstreet Paydex Score: 0-100
- Experian Intelliscore Plus: 0-100
- Equifax Delinquency Score: 224-580
- FICO Small Business Scoring Service (SBSS): 0-300
With each of these scores, a higher number indicates a lower risk to the lender. It’s important to note that there are other commercial credit scores produced by these companies that have different score ranges.
When you review your business credit scores, check the range of the score to help understand where your score falls in that scale.
Does Your Business Have a Score?
In order to have a business credit score, your business must first have a business credit report. You can check whether your business has a credit file with the following major commercial credit reporting agencies:
While these searches allow you to see whether these bureaus have a credit report for your business, they do not provide you with a free credit report or score. (D&B offers business owners the option of ordering a free credit report on their business, but it does not include a score.)
Just because your business has a credit report, that doesn’t mean it has a credit score. Typically you’ll need at least two or more accounts reporting payment information for a business credit score to be generated, though the exact number will depend on the requirements for that bureau.
If your business doesn't have a score, apply for business credit. Business credit cards and loans that report to business credit can help you build a solid business credit score.
Another easy way to build a credit score is to establish accounts with vendors who offer 30, 60, and 90-day terms. Make sure they will report your payment history to at least one of the major commercial credit agencies. That way, you can purchase many of the supplies you need for your business and build credit simultaneously.
How to Increase Your Business Credit Score
Once you've ensured that you have a business credit rating, you can work to increase it. It takes time, regular payments, and responsible use of debt to build strong scores. Here are a few strategies to consider.
Always Pay On Time
Payment history is the most important factor in building strong personal and business credit, and it’s even more important with business credit as most commercial credit scores heavily weight payment history when calculating scores. Unlike personal credit, where payment history falls into 30-day buckets, a payment that is one day late may appear on your business credit reports.
Check For Accuracy
It’s not uncommon for business credit reports to contain mistakes, and wrong credit information can result in an inaccurate credit score so check your credit reports for accuracy. Unlike consumer credit reports, there is no requirement that bureaus provide free copies of business credit reports.
Manage Debt Well
Lenders will see your company as low risk and be more willing to approve you If you are using credit responsibly. The key is to make sure you're not over-extended and that you're fully capable of making payments on time.