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.
As someone deeply entrenched in the world of business credit, I understand the nuances and intricacies that play a pivotal role in the success of a business. My expertise goes beyond the surface, backed by a wealth of knowledge derived from practical experiences and a comprehensive understanding of the subject matter.
Now, let's delve into the concepts highlighted in the article about business credit scores:
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Distinction from Personal Credit Score:
- Business credit scores, like personal credit scores, are calculated from credit reports.
- Business credit reports focus on business-related information distinct from personal credit reports.
- Major credit bureaus like Dun & Bradstreet (D&B), Equifax, and Experian compile business credit reports.
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Multiple Business Credit Scores:
- Each business credit bureau generates multiple scores measuring different aspects.
- D&B's PAYDEX score assesses payment history, while others predict risks like delinquency or bankruptcy.
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Unawareness of Business Credit Score:
- Credit bureaus may start compiling a credit report for a business entity without its knowledge.
- Awareness often arises when credit applications are denied.
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Accessibility of Business Credit Score:
- Unlike personal credit reports, anyone, including individuals, companies, or government agencies, can access business credit reports.
- Inaccurate data can harm business reputation unknowingly.
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Industry Impact on Credit Score:
- Business credit reports include industry data, comparing businesses of similar size, longevity, and location.
- Industries facing challenges may impact business credit scores negatively.
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Monitoring for Improvement:
- Regularly monitoring and disputing errors in business credit reports can enhance scores.
- Subscription to credit monitoring services is recommended.
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Early Payments and Credit Score Improvement:
- Timely payments are crucial for business credit scores.
- Early payments can positively impact D&B PAYDEX score.
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Submission of Additional Information:
- Providing comprehensive financial information can enhance credit history and scores.
- Businesses can submit financial statements or trade references to credit bureaus.
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Broad Influence of Business Credit Score:
- A good business credit score can lower business costs, improve cash flow, and open new opportunities.
- Landlords, insurance companies, vendors, suppliers, partners, customers, and government agencies may consider business credit scores.
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Strategies for Building Business Credit:
- Using credit is essential for building business credit.
- Options include getting a business credit card, seeking trade credit from vendors, and obtaining a business credit line.
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Link between Personal and Business Credit Scores:
- Personal credit scores may be checked by lenders even with a good business credit score.
- Personal credit scores can influence some business credit scores.
Understanding these intricacies empowers entrepreneurs to navigate the complex landscape of business credit, enabling them to make informed decisions and secure the success and growth of their ventures.
