Comprehensive Guide to Business Credit Score: Everything You Need to Know

Ryan Patrick

• 8 min read
Comprehensive guide to Business Credit Score: Everything you need to know

Credit is a company’s lifeblood in today’s business world. While a low credit score can keep doors of opportunities closed, a high credit score can lead to new opportunities. As a business owner, you need to be aware of and take care of your credit score.

This comprehensive guide will explain business credit scores, and discuss how they impact the financial stability of your organization. By the end, you should be equipped with the information and resources you need to successfully and confidently manage your company’s credit.

What is a Business Credit Score?

An important aspect of your company’s financial reputation is its business credit score. It is a three-digit figure that represents the creditworthiness of your organization. Just as a personal credit score is used for individuals, it is a tool used by lenders and creditors to evaluate the creditworthiness and risk of your company.

A low business credit score may restrict your access to capital or even raise the cost of borrowing, while a high score can help your company achieve better loan terms, favourable interest rates, and a larger range of financial possibilities.

Importance of Business Credit

When it comes to helping you qualify for loans or credit lines when you need to borrow money, business credit functions similarly to personal credit. Getting authorized for credit lines through your suppliers and vendors may also be simpler if your company has a solid credit history.

Your total success as a business owner may depend on your ability to obtain credit and finance. For example, you may use your strong credit score to get approved for a short-term loan if a customer doesn’t pay their invoice on time and you need the money to pay your employees’ salaries. Similarly, it can be simpler to manage your company’s cash flow if you can finance the purchase of products or hire vendors for services.

When you borrow money, having good business credit might also save you money. Your chances of being eligible for the best rates on loans and vendor financing increase with your credit score.

Factors that Impact Your Business Credit Score

There are a few main factors that can impact business credit scores.

  1. Payment history: A credit score is significantly impacted by late payments, tax liens, judgments, and collections. The business credit reporting agencies are looking for a track record of timely payments, ideally without any errors. Your company credit ratings may be placed at the highest risk and may take several years to recover from if you do not make your payments on time, have debt that is placed in collections or have debt that is recorded in court. A single $100 late payment or collection might result in the denial of a company loan or credit line. Payment history plays a significant role in both consumer and commercial credit.
  2. Credit utilization: The ratio of your overall debt to the total credit limits on all of your accounts is known as your credit utilization rate. Balance to limit ratios have a significant impact on some business credit scores but not on others.
  3. Age of credit: If the average credit age or account count is too low, certain company credit bureaus will not produce scores for that information. An inactive company entity is reflected in relatively fresh credit and a small number of accounts, placing the business in a higher-risk category
  4. Credit mix: Display your proficiency with credit management by maintaining a diverse range of accounts. Among the credit kinds that appear on company credit reports include equipment leases, vendor credit, credit cards, lines of credit, and loans. Credit card accounts are not always included in credit profiles by corporate credit bureaus. Your organization’s business credit profile’s health may be impacted by knowing which credit kinds will appear on which bureau. Before asking for numerous business lines of loans, your organization should have a good range of established company credit.
  5. Business Information: When a third party requests access to your business credit record in order to consider you for a possible partnership or bid approval, they are attempting to determine whether you fall into the appropriate service category to meet their needs.  Your organization can be rejected before any more data is examined or evaluated if it has the incorrect SIC and NAICS codes. The sector or industry you operate in is reflected in these codes.  A simple method for the prospective partner to exclude unsuitable partners is to use the codes to eliminate the wrong firms. The number of workers, duration of operation, and accurate ownership data might also work against or in favor of a company seeking permissions.  Having accurate representations of the company’s data is as important as having a track record of timely payments.

How to Check and Monitor Business Credit Scores

You have a few options if you want to check your credit score and company credit profile. It’s crucial to remember that each of these businesses may have a unique method for gathering and arranging company credit data.

1. Dun & Bradstreet

Businesses with a credit file can obtain free credit reports and scores from Dun & Bradstreet (D&B). A preliminary need for creating a credit file with Dun & Bradstreet is obtaining a data universal numbering system (DUNS) number. This nine-digit number is used to uniquely identify your company. The D&B website allows you to apply for a DUNS number at no cost to you.

After completing that, Credit Signal will provide you with access to your D&B PAYDEX score. When you register, you’ll also receive free credit monitoring. PAYDEX scores are based on past payment history and range from 1 to 100. A higher score suggests that there is a greater likelihood of on-time bill payment for your company.

2. Equifax Business

Businesses across a range of industries, such as financial services, healthcare, manufacturing, and retail, can obtain business credit reports from Equifax. The purpose of the Equifax Business Credit Report is to assist you in identifying potential credit risks, both present and future, to your company.

Equifax Core Credit offers a free credit score every month. Viewing your latest Equifax Business Credit Report is another option. For additional information, you must fill out the contact form available on the Equifax website.

3. Experian Business

Small company credit reports are available online instantly from Experian. By entering the company’s name and address, you can check the business credit of your company or another. Consider signing up for Experian Business Credit Advantage if you’d want to monitor your credit on a frequent basis.

Steps to Establish Business Credit

If you’re ready to build company credit. To create a business profile, just follow these steps.

1. Register the Business and Obtain an EIN

On paper, your company is legal if it is registered with the appropriate authorities. Depending on your business structure and the state rules in effect, you may need to formally register. Additionally, you might have to submit an application to the Internal Revenue Service (IRS) for an Employer Identification Number (EIN). This number is used by the IRS to identify your company for taxation purposes. An EIN application is available on the IRS website.

2. Open a Business Bank Account

Although it’s not always necessary, having a company bank account is beneficial for a number of reasons when building business credit. Your company will seem more legitimate if it has its own bank account. Moreover, it makes it simpler to keep work and personal expenditures apart, which is advantageous whenever you are doing your taxes.

When opening a bank account for your business, you could be asked for your EIN. When choosing a bank, it’s beneficial to review the minimum initial deposit requirements, fees, and other account features.

3. Establish a DUNS Number

In order to create a business credit profile with Dun & Bradstreet, you will require a DUNS number. This number is free to request online.

Equifax and Experian do not require you to request a particular identification number. After businesses you borrow money from report your account activity to the credit bureaus, your business credit profile can be created.

4. Consider a Business Credit Card

The purpose of business credit cards is to facilitate the acquisition of necessary items to maintain the operations of your company. It is usually not necessary to have any business revenue in order to get authorized for a business credit card based on your personal credit scores.

When comparing business credit cards, keep the following in mind:

  • Annual percentage rate (APR) for purchases and debt transfers;
  • Fees, including annual and international transaction fees;
  • Rewards, if the card provides one

Despite the limited initial credit limit, you can raise it by paying your card in full each month and on time.

5. Establish Vendor Credit

Getting a small company loan might not be possible right now if you’re just starting out with your business credit. On the other hand, you might be able to obtain credit lines via your suppliers or merchants.

Vendor credit, which is commonly referred to as trade credit, enables you to purchase goods from your suppliers now and pay for them later. Your account history can assist you in establishing business credit if your vendors submit information to Dun & Bradstreet or another credit agency.

Strategies to Improve Creditworthiness

Your ability to repay loans, whether taken out on your own or for your business, is measured by your creditworthiness. It’s important to address the “five Cs of credit” when talking about what that means for small businesses.

The five Cs of credit are five standards that creditors might apply to determine a borrower’s creditworthiness. They are listed in the following order:

  1. Capacity: Based on your present and expected future cash flow, capacity describes your company’s ability to take on debt and repay it.
  2. Capital: The amount of money invested when it comes to financing your company is one way that lenders gauge your creditworthiness.
  3. Collateral: Any asset you can promise to use as security for a business loan is known as collateral. This could be a real land, a machinery, or a merchandise.
  4. Conditions: Lenders refer to both the overall condition of the economy and the anticipated financial performance of your business when they use the term “conditions.”
  5. Character: Your personal and professional qualities are reflected in your character. It may cover topics such as your overall reputation in the community, any professional certificates you may own, and your prior business management experience.

The most important of the five Cs to focus on will determine how you increase creditworthiness. For instance, if your capability appears to be lacking on paper, you may decide to enhance cash flow and reduce expenses. This could persuade a lender that your company is capable of repaying any loans it may incur.

Are Both the Business Credit Score and Personal Credit Score the Same?

Consequently, a business credit score and a personal credit score could be identical. Personal credit scores are utilized by small businesses, particularly those run by sole proprietors, for business purposes. However, It’s usually preferable to keep the two apart. That way, if a small business owner has bad personal credit, their company could have great credit. Making this distinction might help guarantee that the company receives the working capital required for growth

What is the Fastest Method to Build Business Credit?

Since you can apply for a company credit card without having a credit history, this is one of the quickest ways to establish business credit. Credit card issuers can accept you based on your credit reports and scores, even if your company has not yet produced any revenue. Using a business credit card, you may establish strong business credit by paying your bills on time and maintaining a low credit use rate.

Can I Get a Loan Using My EIN?

Employer Identification Numbers, or EINs, are acceptable to lenders when submitting an application for a small company loan. Depending on its lending standards, a particular lender may utilize your Social Security number or EIN to examine your credit.

What Should be Your Business Credit Score When You First Start?

If you have never established company credit before, your score may be zero. Depending on the credit-scoring mechanism you’re using to monitor your progress, your initial score may vary. For example, Dun & Bradstreet PAYDEX scores go from 1 to 100, where 1 is the lowest possible score.

What Is a Good DUNS Number?

For a company, 100 is the ideal data universal numbering system (DUNS) number. On this credit-scoring system, that is the greatest possible score. Nonetheless, a score of 80 or higher is typically regarded as positive and means that your company has a strong probability of making timely payments and repaying its debts.

Final Thoughts

In conclusion, maintaining your company’s credit score is essential to its financial health. Recall that having a high credit score might help you obtain better financing options as well as new chances. Don’t allow a poor credit score to hold you back! Contact our experts at Incorpuk to help you navigate the tricky world of business credit. Our team of professionals can help you every step of the way, from figuring out what affects your score to creating plans to raise it. Let us assist you in establishing a strong financial basis for your company so you can concentrate on what you do best—expanding and prospering!