LAST REVIEWED Apr 08 2019 6 MIN READ
By Margarette Jung
This article is from our friends at BondStreet. Enjoy! Your business credit score is a measurement of your business’s financial stability and creditworthiness based on factors such as amount of outstanding debt and payment history. Similar to an individual’s personal credit score, a business needs a good business credit score to be approved for various loans. The major business credit reporting agencies are Dun & Bradstreet, Equifax and Experian. Each of these business credit bureaus has their own method of calculation and a unique name for their credit score (i.e., Dun & Bradstreet’s PAYDEX, Equifax’s Business Credit Report and Experian’s Intelliscore Plus). While personal credit scores typically range from 300-850, business credit scores usually range from 0-100 (with excellent credit around the 80 mark). In addition, Equifax uses not one, but three different scores to assess business creditworthiness. Equifax evaluates a business with a Payment Index (0-100 based on payment history), Credit Risk Score (100-992 based on credit history such as credit utilization and length of credit history) and Business Failure Score (1,000-1,880 based on the risk of the business closing). The good news is that the tips on improving your business credit score apply across the board.
Pay Your Bills on Time
All business credit bureaus rely heavily on your business’s payment history. This includes payments on existing loans such as your business credit cards, lines of credit, and any business term loans you may have. This can also include your payment history with suppliers and vendors as well. Having late or unpaid payments will negatively affect your business credit score. It is important to make sure that you have enough working capital to make payments in full and on time. Having a good record-keeping system in place to keep track of bills and their due dates will also help prevent avoidable dings on your credit.
Build Up Your Credit History
Having a track record of timely payments will help build your business credit score. The business credit bureaus will want to see how long you have had credit extended to your business and how much credit you have used. If possible, try to not max out your credit lines on open-end loans such as business credit cards and business lines of credit. If you’re a relatively new business, opening up a business credit card is an easy way to start to build credit history. Use your business credit card for purchases you know you can pay off completely within the billing cycle.
Avoid Negative Actions on Your Accounts
While having late payments on your accounts is one thing, having adverse action taken is even worse. Accounts that have gone to collection will be a major setback to building good credit. Avoid liens and judgments against your business by trying to work out payment plans with your creditors, suppliers or vendors. Good financial management and accounting can help avoid bankruptcy. If you are having a hard time making payments, negotiating a mutually-acceptable payment plan can help save your business from having negative marks on its business credit score.
Monitor Your Business Credit Score
Monitoring your business credit score is crucial to improving it. Monitoring your business credit score will allow you to see what areas you will need to make improvements in, as well as address any errors you find in a timely manner. Businesses should be checking their credit reports at least annually, if not quarterly. Unlike personal credit reports that are available for free on an annual basis, you will have to pay to obtain business credit reports. For the most basic credit report, Dun & Bradstreet charges $61.99, Equifax charges $99.95 and Experian charges $39.95. These business credit bureaus also offer multi-report packages as well as monitoring services to let you know any time your business credit score changes. Having a good business credit score will help your business maintain, expand, and succeed. If you’re applying for a business loan or considering various financing options, having a good business credit score will not only help you get approved, but will help you secure the best rates and terms. Credit generally is more expensive for riskier borrowers, so improving your business credit score will save your business money in the long-term. Remember, however, that depending on the loan many lenders will look at both your business credit score and your personal credit score. Good credit hygiene is important in both areas.
Margarette Jung is a former Head of Marketing at Human Interest.