Demystifying your business credit score

If you’ve ever wondered what goes into a business credit score and why it matters, think about it this way: Knowing your business credit score and managing it well is crucial if you ever need funding to grow your company.

What is a business credit score?

Most of us are familiar with the idea of a personal credit score from credit reporting agencies like Equifax, Experian and TransUnion. They track your history of loans, credit cards, mortgages and so on. With that information, the agencies boil down your repayment track record to a number that helps lenders size up how much risk they’ll take on if they give you a loan.

Your business has a credit score that works the same way by helping lenders evaluate the risk of loaning money to your company. And just as with your personal credit score, business credit scores are based on how your company has handled loan repayments in the past. A higher score indicates a lower risk of defaulting on a loan, which can translate into better borrowing terms and interest rates for your business.

How do business credit scores work?

If your business wants to secure a loan to purchase equipment or lease office space, for instance, the lender will look at several factors, including your business credit score. They will also consider your revenue, profits, assets, liabilities and the value of the assets you plan to buy.

A strong business credit score can help you secure better loan terms, lower interest rates and favorable payment conditions with suppliers. It’s a key indicator of your business’s overall financial health and plays a crucial role in managing business growth.

The major business credit bureaus and credit score ranges

There are four big names in the business credit world:

• Dun & Bradstreet^® PAYDEX^® Score: The PAYDEX score is a snapshot of your business’s payment habits, with higher numbers indicating that your company pays its bills ahead of time.
  • Score range: 1 to 100
  • 80 and above = You pay your bills on time
  • Measures how closely you pay invoices according to terms
    
    
• Experian^® Intelliscore Plus^℠: The Intelliscore is a scorecard with a twist. It uses a statistical model to predict the risk of serious delinquency within the next 12 months, with higher business credit scores signaling to lenders that your business is lower risk.
  • Score range: 1 to 100
  • 76 and above = “Low” credit risk
  • Uses business and personal data for a broad view
    
    
• FICO^® Small Business Scoring Service^℠ (SBSS): You’ve probably heard of FICO in the context of personal credit. It has a hand in the business side, too, with the SBSS score, which lenders use to make decisions on term loans and lines of credit. The scoring range is different and just as with personal credit, a higher business credit score leads to better financing options.
  • Score range: 0 to 300
  • May include personal credit of owners
  • Used by the Small Business Administration and other lenders
    
    
• Equifax^® Small Business Credit Score: Equifax does things a bit differently. It offers a business credit score based on different scenarios for the next 12 months. Its Payment Index maps payment trends, its Credit Risk Score predicts the likelihood of delinquency, and its Business Failure Score estimates the chance of a business closing.
  • Payment Index range: 0 to 100
  • Credit Risk Score range: 101 to 992
  • Business Failure Score range: 1000 to 1880
  • The higher the score, the lower the risk

Each bureau uses its own secret sauce — a unique blend of factors and calculations — to serve up its score. Knowing your scores from these bureaus can be just as crucial for securing business funding as your personal credit score is for getting a mortgage or car loan.

What makes a ‘good’ business credit score?

There's no universal definition of a “good” business credit score, but generally, a score above 75 (in the 1-100 range) is considered strong. However, the specific score lenders look for will vary depending on the type of loan and the lender’s own criteria.

How business credit scores are calculated

The major bureaus generate your company’s business credit score range as a picture of its financial reliability, based on a few key indicators:

• Length of business credit history: This timeline shows how well your company has managed its credit over time. The longer and more positive this history, the better it reflects on your score.
• Loan and debt payments: Consistent, timely payments are a green light, signaling that your business handles its debts responsibly.
• Use of available credit: Maxing out your credit lines can be a red flag, suggesting your business might be overextending itself.
• Public records like bankruptcies: Bankruptcies, liens or judgments can diminish your business’s credit score because they indicate times of financial distress.
• Company size and industry risk: Bigger isn’t always better. The business credit bureaus consider the size of your business and how risky your industry is. A stable, low-risk industry can boost your score, while being in a high-risk sector can potentially lower it.

The synthesis of these factors turns raw data into a score range. This straightforward metric sums up the borrowing reputation of your company, with a high score opening doors to better loan terms and rates.

Keep in mind lenders might want to see your personal credit, too, especially if your business is small. Why? They want to determine whether you, the person behind the curtain, are a safe bet to back up your business’s debts if the company runs into any difficulties.

Checking and maintaining your business credit score

You know the saying: out of sight, out of mind. But when it comes to your business credit score, what you don’t see can hurt you. Regularly checking your score is like having a financial health check-up. Here’s why it should be on your to-do list:

• Know your financial footing: In the same way you check a mirror before leaving the house, you should check your business credit score to see how your company looks to lenders. It’s about knowing your business’s financial reflection.
• Correct credit errors: Imagine being penalized for a mistake you never made. Monitoring your business credit score can help you catch errors or inaccuracies that could drag down your score. It’s your chance to clean up any messes before they stain your reputation.
• Track your credit progress: Building business credit is a marathon, not a sprint. If you’re just starting out, consider using net 30 vendor accounts (meaning the balance is due 30 days from the invoice date) to build a history of on-time payments.
• Stay finance-ready: When it’s time to grow your business and you need financing, you don’t want any nasty surprises. Regular checks help ensure you’re finance-ready when opportunity knocks.

How to check your business credit scores

To check your business credit score, you can order full credit reports straight from the sources:

• Dun & Bradstreet
• Experian
• Equifax
• FICO

Many lenders also provide free snapshots of your score, but here’s a pro tip: Avoid sites offering free business credit scores or reports instantly. These “deals” usually don’t reveal the full picture, and some can be outright scams.

With a little diligence, keeping tabs on your credit score can be an empowering part of managing your business, because credit monitoring and maintenance is more than just checking a box. It’s you taking charge of your company finances so that you’re ready when opportunities to grow your business come along.

Building your credit

Keeping an eye on your business credit score is just step one. Once you’re monitoring it regularly, here are some ways to build it up:

• Pay bills on time: Your payment history is a huge part of your business credit score, so set up reminders or automate your payments.
• Use credit wisely: Keep your balances low, don’t use all your available credit and apply for only what you need.
• Diversify your credit sources: Taking out modest loans or lines of credit and managing them responsibly can boost your score.
• Use business credit cards judiciously: Making small purchases with a card and quickly paying off balances proves fiscal responsibility.
• Check your reports periodically: Verify the accuracy of your reports in case any errors are dragging down your score.

Getting a high business credit score doesn’t happen automatically. It takes planning and effort to develop healthy financial habits that actively build your credit over time.

Using your business credit score to grow

Understanding your business credit score puts the power in your hands as a borrower. Monitoring it helps you spot issues, build your profile and avoid surprises. More importantly, maintaining a healthy score means your company can access the business loans and funding you need, when you need it.

The key is seeing your score as an asset. It’s not a mysterious number but a metric you can understand and manage. With the right insight and discipline, you can help your business reap the rewards of strong credit for years to come.

Want to talk about ways to help strengthen or grow your business? Reach out to a Chase business banker today. We’re always ready to help.