Everything You Need to Know About Business Credit Scores

If you own a small business, you have most likely considered ways to get funding to grow your business. Understanding how funding for small business works, how business credit scores are calculated, and how important it is to establish good credit, will all help you to achieve success as you grow and expand your business.

What Is a Business Credit Score?

A business credit score is used to measure the creditworthiness of your company. Your company’s payment history, credit utilization, and financial stability are all factored into your credit score. The higher your credit score is, the higher you are likely to pay off debt in a timely manner. This is especially important when you are looking to apply for a loan or a credit card.

Business credit scores sound similar to a personal credit score, but they are not the same. Personal credit scores range from 300 to 850 where lenders require a score of at least 600 for personal loans.

Business credit scores range from 0 to 100 where business lenders require a minimum business credit score of 75. The following are other ways these two scores differ from each other:

  • Rating agencies: business financing companies use Dun & Bradstreet, Experian, and Equifax while consumer lenders use TransUnion, Equifax, and Experian.
  • Access: you can see your personal credit score for free from many sources, but a business credit score is available to view from the three credit bureaus listed above and it comes with a fee.
  • Data: some small business financing companies will consider your business credit score and FICO score.

It is important to have two separate accounts, a personal and business because if you mix them it can negatively affect one. For example, if you have a poor business credit score, it may negatively affect your personal credit score.

How Are Business Credit Scores Calculated?

The following data is used to calculate business credit scores which is collected from a variety of sources:

  • Business registrations documents
  • Articles of incorporation
  • Credit applications
  • Business tax filings
  • Personal tax filings
  • Legal filings
  • Creditor reports
  • Business owner reports
  • Industry statistics
  • Tax liens
  • Bankruptcy filings

How to Establish and Build Business Credit

Having a strong business credit is important for any small business owner. The following are important steps to take to ensure you are building your business credit.

Make sure your business is legally registered and get an EIN number

  • Form an LLC or incorporate it and get a federal employer identification number.

Open a business bank account and get a business credit card

  • Keep your business credit card for business use only and be sure to keep your credit utilization low and make consistent timely payments.

Make sure vendors report payments to the business credit bureaus

  • Vendors do not always report payments to business credit bureaus so be sure to ask them so this can show up on your credit report.

Pay early or on time

  • It is always better to pay on time but paying early is even better.

Check your score regularly

  • Keep track of your score especially if you are thinking about applying for a business loan.

Do not fall behind on interest payments

  • Falling behind on interest payments creates financial problems for your company and signals to creditors that you are at a higher risk of default.

Do not take on too much debt

  • Only borrow what you need. If you borrow more, you can hurt your credit score even if you pay back everything you owe.

Stay out of legal trouble

  • Bureaus also look at your public records when setting your credit score so be sure to stay out of trouble.

The Bottom Line

Understanding what a business credit score is essential for any small business owner. Building a strong business credit takes time and dedication but with the information here will help guide you in the right direction. By taking care of your business credit score, you can use it to help grow your business through a working capital loan or business line of credit.