1. Business Credit Basics
As with your personal credit, you have multiple business credit scores from various business credit bureaus. The four business credit bureaus are:
- Dun & Bradstreet
Each of these credit bureaus uses a different credit scoring model and it’s important you understand each one. By knowing how to interpret each type of credit score, you’ll also be able to understand how to improve each one. By taking actionable steps to improve your business credit, you also take steps towards qualifying for financing, which can help you grow and sustain your business down the line when you need it most.
It’s best to get to know each of your business credit scores well — you never know who is looking at which credit score. Unlike personal credit which can only be viewed by those you allow such as a lender, your business credit can be seen by anyone willing to pay the bureau for a copy of your business credit report, including yourself (yes, you have to pay for it, too). A mistake or bad mark on one business credit score could impact your business negatively even if your other business credit scores are in good shape. Take a holistic view of your credit and regularly review all business credit reports on a semi-annual basis.
Dun & Bradstreet Business Credit Explained
Experian Business Credit Explained
Equifax Business Credit Explained
FICO SBSS Business Credit Explained
Dun & Bradstreet is a name you should get familiar with. It’s the oldest credit bureau in America and it’s the only credit bureau that exclusively handles business credit. Experian, FICO and Equifax — on the other hand — handle both personal and business credit. Dun & Bradstreet has two rating systems:
- D&B Rating
- D&B Paydex Score
Additionally, your D&B Rating has two components: the “rating classification” and “composite credit appraisal.” Let’s break that all down.
Your rating classification is expressed in a combination of letters and numbers to indicate a company's size based on equity or net worth. The highest rating your company can earn is 5A, indicating a net worth of $50 million or more. And the lowest rating your company can get is HH, indicating a net worth less than $5,000. The other portion of your D&B Rating is your composite credit appraisal. This measures the overall creditworthiness of a business. The highest rating a company can receive is a 1, indicating most creditworthy. The lowest rating a company can receive is a 4, indicating least creditworthy.
On top of that, your business will also receive a Dun & Bradstreet Paydex score, which is expressed as a number between 1 and 100, with a higher number indicating that your business is more likely to pay its debts on time. Your business’s D&B Paydex score evaluates various factors such as how soon your business repays its debts. Whereas your D&B Rating looks at net worth, your D&B Paydex score is a reflection of your business’s ability and history of repaying debts owed to lenders.
According to Dun & Bradstreet, an improved score can lead to positive outcomes like being able to borrow money, receiving more favorable terms from suppliers and even negotiating better payment terms.
Experian is a name you’re likely already familiar with. Both a personal and business credit bureau, Experian’s business credit scoring model is among the most simple.
Experian business credit is meant to show a company’s risk potential and is expressed numerically on a scale of 1 to 100. Higher scores indicate lower risk whereas lower scores indicate increased risk. Your score could impact your business’s ability to get a loan, qualify for favorable interest rates, get favorable business insurance premiums and even receive extended credit terms with suppliers.
According to Experian, “business credit reflects your company’s image to potential lenders and business partners.” Unlike personal credit, which can only be viewed with the permission of report holder, anyone can view your business credit for any reason so it could impact you without you even realizing it.
Equifax calculates two business credit scores that appear on its business credit reports:
- Equifax Business Credit Risk Score: According to Equifax, “Business Credit Risk Score predicts the likelihood of a business incurring a 90 days severe delinquency or charge-off over the next 12 months. The score ranges from 101 - 992 with a lower score indicating higher risk.”
- Equifax Business Failure Score: “Business Failure Score predicts the likelihood of a business failing through either formal or informal bankruptcy over the next 12 months. The score ranges from 1000 - 1610 with a lower score indicating higher risk,” the Equifax website reads.
Each score provides insight into how risky your business is and its likelihood to succeed or fail. This can have a direct impact on decisions made by lenders, partners, vendors or other critical business relationships.
FICO is a familiar name in the world of personal credit but it offers business credit as well. FICO SBSS, which stands for Small Business Scoring Service, has a scoring model that ranges from 0 to 300 with 300 being the best.
A higher score indicates that your business is likelier to repay a loan. Unlike the other business credit scores, FICO SBSS business credit score is based on both business and personal financial habits so your personal credit history, for better or for worse, will play a role.