While individual consumers are assigned a personal credit score based on their credit utilization, payment history and other factors, the same can be said for businesses and business credit scores. However, there are key differences between personal scores and business credit scores that make each type unique, including which third parties and credit bureaus assign them.
Just like personal credit scores for consumers, a business credit score can affect a business’s operations and whether it can qualify for financing with the best rates and terms. This guide to business credit scores explains the most common types, what a good business credit score looks like, and how to build business credit for the future.
What is a business credit score?
A business credit score is a score assigned to a business that shows how well a company manages its credit and what the risk is to creditors. These scores are determined using similar factors as personal credit scores, including payment history, credit utilization, length of credit history and mix of credit types used.
All types of businesses can have a business credit score, from large companies with thousands of employees to solo entrepreneurs. The key to getting a business credit score is for lenders, suppliers, vendors or any combination to report payment history and other details to the credit bureaus. If you have a business credit card that is reported to the business credit bureaus, for example, you likely have a business credit score.
What is a good business credit score?
Unlike personal credit scores from the three credit bureaus (Experian, Equifax, and TransUnion), which follow a similar format, business credit scores can look very different depending on where they come from. In other words, what is considered a “good” business credit score can vary dramatically from company to company.
Below are details on the five most common business credit scores and how each type works.
Dun & Bradstreet PAYDEX Score
Dun & Bradstreet is a business credit bureau that focuses exclusively on business credit and is where the Dun & Bradstreet PAYDEX Score originates. According to the company, the PAYDEX Score is a “dollar-weighted indicator of a business’s past payments” and can fall between 1 and 100.
PAYDEX scores above 80 are generally considered “good,” but Dun & Bradstreet actually divides its scores into three different risk categories. These risk levels indicate each level of risk as follows:
Interestingly, the results are not automatically generated. Businesses must register for a DUNS number on the Dun & Bradstreet website to be assigned a PAYDEX score, which makes it possible for suppliers and other third parties to report their payment history to this credit bureau.
Experian Intelliscore
Experian, a major consumer credit bureau, also issues business credit ratings. There are two types of Experian Intelliscore business credit scores — Intelliscore Plus and Intelliscore Plus V2.
Intelliscore Plus uses factors such as trade line and collections information, public filings, new account activity, recent credit inquiries and key financial ratios to assign a score. Intelliscore Plus V2, meanwhile, bases credit scores on Experian’s “broad range of commercial, collection, public record and firmographic data,” according to the credit bureau.
With both types of Experian Intelliscore, businesses can have a business credit score from 1 to 100. While higher scores are better and scores above 76 are considered “good,” here’s how Experian breaks down the score ranges based on different risk levels:
Equifax Business Credit Scores
Equifax is another major consumer credit bureau that also covers business credit. Equifax has two types of business credit ratings – a business credit risk rating and a business failure rating.
According to Equifax, its Business Credit Risk Score is built on “pre-recession, recession and post-recession data” to help companies “determine appropriate credit terms based on the potential for business failure and delinquency.” Meanwhile, a business failure score is created using a risk assessment model that predicts the likelihood that a company will go bankrupt in the next 12 months.
Because these two business credit scores are different from each other, they use different ranges to show where businesses fall on the spectrum based on their level of risk.
Equifax Business Credit Risk Score
The business credit risk score range is between 101 and 922. A higher score indicates a lower overall level of risk. Any score of 700 or higher is generally considered a “good” business credit risk score.
Equifax Business Failure Score
A business failure score can fall between 1000 and 1880. Higher scores indicate a lower risk of bankruptcy. A “good” business failure score from Equifax is usually any score of 1315 or higher.
FICO SBSS Credit Score
Although FICO is a company that creates credit scoring models and not a credit bureau, it creates a business credit score known as the FICO Small Business Scoring Service (SBSS) credit score. According to FICO, its score is one of the most widely used in assessing the risk of US small business loan applicants applying for Small Business Administration (SBA) loans.
The FICO SBSS credit score is always between 1 and 300, with 300 being the highest possible score. Businesses applying for an SBA loan generally must have a score of 155 or higher.
How to Check Your Business Credit Score?
While there are many ways to check your free personal credit score (including the MyFICO.com website), the same cannot be said for business credit scores. Any third-party company or business credit bureau that creates business credit scores requires you to purchase your report and scores on a one-time or subscription basis.
The cost of obtaining a business credit report and score varies from company to company and depending on the method you choose. For example, you can purchase a business credit report and PAYDEX Score from Dun & Bradstreet for your company or other business for $139.99.
Some companies also offer business credit report monitoring services that aim to prevent stolen business information while adding another layer of protection for confidential data.
Calculation of business credit ratings
While different business credit scores are calculated in slightly different ways, each model relies on many of the same factors. These may include:
- Age and size of the company.
- Loan utilization ratio.
- Trade lines built.
- Length of credit history.
- A mix of active credit products.
- History of payments to creditors, lenders, suppliers and other third parties.
- Information from public records.
- Risk of failure based on industry.
Key differences between personal and business credit ratings
Personal and business credit scores work similarly, although personal credit scores are for consumers while business scores are for companies. There are other differences in how personal and business loans work, including the following:
Types of scores
The types of credit scores for consumers and businesses are completely different, although some of the companies overlap. We’ve already outlined the types of business credit ratings you can have in this guide. The most popular consumer credit scores are FICO scores and VantageScore credit scores.
SSN vs. EIN
Consumer credit is tied to your Social Security Number (SSN), while business credit is tied to something called an Employer Identification Number (EIN). Where the government uses the SSN to identify individuals for tax purposes, the EIN is how government agencies identify businesses for tax purposes.
When it comes to business vs. personal credit cards, however, you may notice that some business card applications require both an SSN and an EIN. This is because business credit cards that require a personal guarantee can still build business credit.
Legal protections
Consumer credit comes with significantly more legal protection than business credit. For example, small businesses are not eligible for legal protections provided to individuals in the Card Accountability and Disclosure Act (CARD Act) of 2009.
Benefits of a business credit score
A business credit score is useful for several key reasons. First, having business credit means you can apply for business credit cards and loans and get financing faster and easier than you would if you applied as an individual with your personal credit score.
Second, having a good business credit score can help you get better rates and terms when you borrow money, even if a personal guarantee is required.
There are also situations where companies want to borrow money without putting someone’s personal credit at risk. In that case, having a business credit score and EIN may be the only way to get approved.
How to improve your business credit
Many of the same steps needed to improve a personal credit score also apply to business credit scores. Whether you’re building business credit from scratch or looking to improve one of your business credit scores before applying for a business credit card, these moves can help:
- Keep debt levels low: Keeping debt levels low shows that you are not overly cash-strapped and that your business is operating without exceeding your available credit limits.
- Monitor Your Progress: Monitoring your business credit over time can help you spot problems or misreporting. Knowing these problems early gives you a chance to deal with them.
- Never miss a payment: Just like personal credit, your payment history can make or break your credit score. Make sure you pay all suppliers and business-related bills on time every month without exception.
TIME Stamp: A business credit score can affect your company’s potential
If you’re looking to apply for a business loan to invest in inventory or equipment, having a solid business credit score can get your loan application across the finish line. Without business credit, you may be left trying to finance the company’s needs with cash or by using your personal credit.
This is just one reason to have a business credit score, but there are others. In summary, a business credit score can help your business reach its full potential.
Frequently Asked Questions (FAQ)
How do you check your business credit score?
You can’t check your business credit score for free like you can check a personal credit score. You must purchase a business credit report and score from companies that offer this option, including Dun & Bradstreet, Experian and Equifax.
How long do negatives stay on a business credit report?
According to Experian, negative trade records can remain on your business credit reports for 36 months (three years). Meanwhile, bankruptcies are reported for nine years and nine months, collections, judgments and tax liens are reported for six years and nine months, and Uniform Commercial Code filings are reported for five years.
Do I have a business credit score if my business is new?
If your business is new, you may not have a business credit score. You are definitely out of luck if your business does not have any relationships that would result in business activity being reported to the business credit bureaus.
