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Business Credit Scores Explained

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April 25, 2022

If you're new to the world of owning your own business, you might wonder how business credit reports work and how they differ from personal credit scores. Good Funding agents often get asked about how the system works, and how we assess a company's credit history during the application process. So let's take a look and answer some questions about business credit reports.

What is a business credit score—and do you actually need one?

Just like a personal credit score, a business credit score measures the risk the business poses to creditors. A business credit score shows how reliable and financially sound your business is when it comes to making on-time payments. It’s a numerical score, but the business credit scores range from 0 to 100 instead of 300 to 850.

Not all businesses have a credit score, either. Small businesses often don’t have one because they don’t have enough history of payments; they’re just starting out. A new business owner may use their own personal credit score to get their company off the ground in the first few years. As the business grows, the owner may want to establish separate credit for the business from their personal finances so that they’re more protected if something in the business goes wrong.

At that point, if the business needs a line of credit or a loan and the owner does not want to use their personal credit score, the business may take steps to acquire its own.

Because not all businesses have a credit score, and because it takes time to work towards a good one, Good Funding knows that a credit score is only part of the equation. That means that credit is one of several factors we look at when you apply for our products, and sometimes we don’t need it at all.  

What is the difference between personal and business credit scores?

There are a few key differences between personal credit reports and business credit reports.

Social Security Number (SSN) vs. Employer Identification Number (EIN):

Most adults have a FICO score, even if they’ve never actually applied for a line of credit because personal credit is tied to your social security number. Business credit scores are tied to their EIN, so if a company doesn’t have one, they also don’t have a credit score.

Scale:

We’ve mentioned that personal credit scores range from 300 to 850 points. Business scores range from 0 to 100. Most small business lending companies expect a score of 75 or better to consider a business for a loan.

Rating Agencies and Privacy:  

Consumer lenders can use companies like Equifax, Experian, and TransUnion to check someone’s credit report, which is free to view and also private. Business credit scores, on the other hand, come from major business credit bureaus Dun & Bradstreet, Experian, Equifax, or the financing company’s own specific formula. For this reason, a small business owner might find that major credit bureaus and small lending institutions determine business credit scores differently, and that they calculate scores differently, too.

Unlike personal credit, business credit scores are public; Anyone can go to the rating agency and view your credit reports.

Consumers can look at their personal credit report for free from a number of different sources, but businesses can only see their score from Dun & Bradstreet, Experian, and Equifax for a fee. Sometimes businesses can see part of their business credit report for free, but that often leaves off crucial information.

Standardization:

Consumer credit bureaus use FICO or Vantage scores to standardize consumer’s credit reports so that good financial decisions are rewarded the same way across states lines and over time. But business financing lenders often use their own formulas to arrive at a business’s credit score.  

What kinds of businesses have credit scores?

Lots of different kinds of businesses have credit scores, but a lot of different kinds of business don't, also. It depends on what goals the business has and what their needs are. Plus, getting a business credit score can be difficult.

In order to get a credit report, businesses must have an EIN, a business bank account, and a business phone listing.

They then must find vendors who report their trade lines to business credit bureaus so purchases and on-time payments can increase your score. Not many vendors report to business credit bureaus, so going about your business’s day to day activity may not help you grow your score.

Then you need to purchase using a credit card or line of credit, and you need to purchase a lot to move the needle; a couple packs of pens won’t do much to prove your credit worthiness.

Even then it’s possible your business won’t qualify for a business score. Your business may qualify for business credit cards but not a business credit score.

With those kinds of hoops, medium to large businesses with years of experience are more likely to have credit scores than newer businesses that don’t generate enough revenue.

That’s why Good Funding doesn’t believe bad credit is necessarily a deal breaker. If your business pays of your obligations on time, runs into some trouble and misses one payment for one vendor who happens to report to the bureau, your credit score could take a downturn. Good Funding doesn’t tighten requirements for start-ups or fledgling businesses, either. Many of our customers are in your same shoes.  

What is a business credit score used for?

Just like with a personal FICO score, lenders and creditors need a method to determine the risk your business presents before they approve your business for financing. Higher scores tell creditors that your business is trustworthy and more likely to pay your obligations on time. Lenders can check your company’s business credit report to see details about your business’s financial history.

Credit scores can determine how much borrowing power you have, and how much credit financing companies will extend to you.

Business credit can determine your rates for things like commercial insurance, loan terms, and repayment options.

Credit scores help vendors determine how long they’ll give you to pay for goods and services. You’ve probably heard of net-30 terms, which mean you have 30 days to pay your invoice. If you are granted net-60 days because you have a history of good credit, your company can juggle its working capital better and will have more flexibility.


What is a "good" score?

Business credit scores aren’t standardized, but in the 0-100 point scale, the small business administration considers companies with a score of 75 or higher for loans on good terms. But there are lots of different risk interpretations.

Paydex, via Dun & Bradstreet, considers a good business credit score s ranging between 80-100 to mean that the business's payments come on time or early. Business credit scores of 50 to 70 means the business's payments are 15 to 30 days late, and a score of 0-49 means that payments come 60 days or more past the due date.

The Intelliscore Plus risk assessment from Experian indicates that business credit scores of 76- 100 means lending risk is low, 26- 50 indicates the lending risk is medium, and business credit scores between 1-10 shows a very high risk.

For Good Funding, your business credit is just part of the decision. Less-than perfect credit isn’t an immediate barrier to entry as we consider lots of things to determine if our product is a good fit for your business. The only way to know for sure is to apply. When you apply, we won’t do a hard credit pull, and there’s no obligation to purchase if we do accept your application.

 

How do you find your business credit score?

There are some free business credit report services, like Dun & Bradstreet’s CreditSignal, which alert you when your D&B credit ratings change, give you a monthly summary of activity, and show how often your credit file is being accessed by third parties, but you won’t have access to your full Dun & Bradstreet business credit score unless you pay for a subscription.

Another option is a Nav business credit report, which will summarize your Dun & Bradstreet, Experian and Equifax business credit scores for each, and provide tools to help you build your credit, but it again, won’t show your whole credit report unless you subscribe.

An Experian business credit score offers a full paid credit report as well, which will show you your whole credit report, alerts you to changes, and shows what affects your score. There are a couple different price levels for their products.

In general, you need to go to one of the major business credit reporting agencies: Dun & Bradstreet, Experian or Equifax.  

What factors affect your business credit score?

Lots of things count towards business credit scores. Remember that each financial lending institution will weigh these factors up slightly differently.

Personal and Business Credit History

Business credit reporting agencies might take a look at the loans you and your business have had in the past, the credit lines you’ve had, and your payment history. If there’s a history, either personal or through the business, that you pay back loans quickly, your business credit score may increase.

Longevity

The age of your business matters because the older your business, the more stable and financially viable it is, theoretically. Again, your score can raise by showing your payment history and the consistency and timeliness of your payments. The more time you have to show, the more likely your payment history will indicate that lending money to you comes with less risk.

Assets, Revenues, and Outstanding Debts

If your business owns property or other significant assets; if your business consistently brings in profit and revenues; and if you’re paying your outstanding debt routinely and responsibly, your score can increase. Like longevity and credit history, the health of your business over time can raise or lower your business credit score.

Public Records

Reports such as UCC filings, liens, and other judgements against you can make your business look like more of a risk, and might lower your business credit score.

Industry

Depending on the industry you’re in, lending agencies might assign more or less risk. Bars and restaurants tend to be riskier than accounting firms, for instance, and lenders will view the two businesses differently.  

Good Funding helps small business owners evaluate all of their loan options every day. We'll work with you to weigh all the factors your business deals with on a daily basis to find a loan or financing option that actually helps where you need it the most.

 

How can you dispute errors on your business credit score?

Errors on your business credit report can affect your business options significantly, so it’s vital that you check your scores regularly. Credit bureaus make mistakes and obtain incorrect information sometimes, so it’s up to you to ensure the right information is present. They may get your business confused with another business, causing your credit to veer wildly off course. Sometimes UCC filings could affect business credit scores, too, without your knowledge.

So what do you do?

Contact the credit bureau first, directly. If you have proof that the information they have is incorrect—by providing revenue and bank statements or paid bills—they’ll be able to change the reports to reflect the accurate information.

Even when you report an error, it could take weeks or months for the agency to correct the information and remove the incorrect data from your report.  

Check your business’s publicly available financial information routinely, including the business credit scores. These scores change regularly, so even if you have a good business credit score, you should make it a habit to check them once a quarter to stay on top of shifts.

Ultimately

Business credit scores function similarly to personal credit scores, but they're measured and acquired differently. Some businesses don't have one at all.

Good Funding wants to help businesses, so a business's credit score is only part of the equation. We don't believe bad credit has to be a deal breaker. No matter where your business is coming from, making sound decisions will help your business grow, and we want to help you do that.

Contact us to get started today!

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