What Is A Business Credit Score And How Does It Work?

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A business credit score provides credit agencies, loan issuers and vendors or suppliers with a general idea of how trustworthy you are when it comes to borrowing money for your business. Like a personal credit score, a higher business credit score tells these interested parties that you’re more creditworthy.

What is a business credit score?

Like a personal credit score, a business credit score is a measure of your credit payment history, and an indicator to potential lenders of your creditworthiness. A business’s number of employees, historical financial data, past payment history and amounts owed can all factor into a business credit score.

Depending on the bureau, business credit scores can range between 0 and 100, 101 and 992 or 1000 to 1610.

When is a business credit score used?

Typically, both your business and personal credit scores will be factored into any application for a small business loan. Small business lenders want to see your business’s history of borrowing and how well it has been able to make required payments in the past. Different lenders will have different minimum credit score requirements.

In addition, other businesses — like vendors or manufacturers — may look into your business credit history when establishing or re-negotiating payment terms. Potential investors may also look at your business’s credit history to help get an understanding of whether you might be a good investment.

How to get your business credit score

There are three major business credit reporting bureaus: Dun & Bradstreet, Equifax and Experian. You can check your business credit score directly with any one of them; however, you’ll have to pay for your Equifax and Experian reports. Dun & Bradstreet offers a report for free, as long as you have a DUNS number, which you can access for free.

Benefits of having a business credit score

Building a strong business credit score can help small business owners in several several ways:

• Personal finances are kept separate from your business finances. Having a business credit score can help you access capital for your business without leaning on your personal credit. This separation ensures your personal finances aren’t at risk when you borrow money for your business, and it can also be helpful when it comes time to file your taxes each year. If you plan on deducting expenses, you’ll need to keep business and personal finances separate, inlcuding any open credit accounts.
• Access to financing is easier. A good business credit score can help you take out business loans at lower interest rates. If and when you take out a business loan, you’ll be less likely to have to sign a personal guarantee with a strong business credit score.
• Insurance policy rates may be lower. Insurance rates can be high, especially for a growing business. A good business credit score may help your business attract low rates.

Differences between personal and business credit scores

There are many differences between your personal credit score and your business credit score.

How to improve your business credit score

Improving your business credit involves many of the same steps you would take to boost your personal credit score. Here are some steps you can take:

• Pay your business bills and expenses on time. Your payment history affects your business credit score more than any other factor, which means you’ll want to prioritize paying your bills early or on time.
• Make sure your lender reports to credit bureaus. Not all business creditors report trades and lines of credit. If you’re looking to build business credit with a loan or business credit card, make sure you ask if the lender will report your payment history to a major business credit bureau.
• Use credit regularly and responsibly. Use your business credit as much as you can, especially purchases that are already budgeted into your cash flow. The more you demonstrate that you can borrow and repay responsibly, the stronger your credit will become.
• Monitor your business credit score. Just as you keep an eye on your personal credit score over time, you should monitor your business credit score for changes and updates, reporting any errors you spot to the appropriate bureau or creditor.
• Don’t max out your business credit. Experian recommends keeping your credit utilization on business credit cards and other lines of credit below 30 percent for the best results.

The bottom line

Establishing good business credit is immensely important when it comes to building a strong business. As with your personal credit score, your business credit score provides powerful insight into how successful a business is to potential creditors, investors and business partners.

You can stay on top of it by building solid financial habits, starting with choosing the best credit card for your business, regularly monitoring your credit reports and disputing any errors that arise along the way.