A personal credit score determines the level of risk that comes with lending to you. You use it to apply for credit cards and other financing options to cover major purchases. A business credit score works similarly, except instead of evaluating your risk as an individual, financial institutions evaluate your business’s viability.
Like personal credit, business credit takes time to build. While your equity may be able to boost your business credit, the overall goal is to keep your personal and professional finances separate. This guide will review the factors that go into your business credit score range and what a healthy number looks like.
What Goes Into Your Business Credit Score?
Multiple factors contribute to your business credit score—some are in your control while others aren’t. A few of these factors include:
- Your payment history: If you have paid off your loans steadily over time without missing any payments, you will have built a strong business credit score.
- Credit history and age: How long has your business had financial liabilities? A new business will have a much lower credit score than a company that has maintained good credit for the better part of a decade.
- Number of accounts: How many accounts do you have? How many are active with existing debits or credits?
- Credit utilization: What percentage of allowed credit do you have? Have you reached the maximum limits of your business credit cards, or do they still have available credit for you to use?
- Types of credit: Credit bureaus look for multiple funding sources, otherwise called a credit mix.
- Recent credit inquiries: Have lenders recently requested information about your business? How many and how long ago?
Many of these factors are also used for personal credit scores. However, they take on a new meaning when applied to a business.
For example, the severity of the debt you take on also depends on the size of your business and your expected profits. Your credit can also be impacted by vendors that send unpaid invoices to collections or report overdue bills that you miss.
Essentially, almost any financial transaction you make as a business owner can contribute to your credit score, which is why it is so important to maintain good, organized bookkeeping.
What Is a Good Business Credit Score?
The main difference between a personal and business credit score is the number range. While a personal credit score ranges from 300–850, business credit scores are developed on a scale of 0–100. Additionally, there are 3 main business credit score bureaus, all of which use this range. These are Dun & Bradstreet (D&B), Equifax, and Experian.
As a rule of thumb, the higher the score, the better. If you have a credit score range of 80–100, then you have exceptional business credit and shouldn’t have trouble securing funding.
A score of 50–100 is considered fair and you should be able to get funding, though maybe at a higher interest rate or more limited terms. Finally, anything below 50 is considered poor credit and a high-risk account.
For each of the 3 major credit bureaus, there are scores that determine your credit score range:
- Commercial credit score: this number tracks the likelihood that you will miss a payment on a loan or credit card within the next year. D&B uses this score and it ranges from 101–670.
- Business credit risk score: Used by Equifax, this is the probability of your business becoming “severely delinquent” on payments. This score ranges from 101–992, with a lower score indicating a high-risk account.
- Financial stress score or business failure score: The name of this score will change depending on the credit bureau you work with, but this is the likelihood that your business will have to permanently close within the next 12 months. For D&B and Equifax, the score ranges from 1,001–1,610. The lower the score, the higher the probability of financial distress.
In the case of Equifax, if you have a zero rating for their credit risk score or the business failure score, it means the company is in bankruptcy.
Check Your Business Credit Score
You can find sample business credit score reports for each of these credit bureaus so you can determine which ones you want to use. The scores should stay relatively equal across each report.
To access your credit scores, visit the websites of these credit bureaus. You can pay from $40 at Experion up to $100 at Equifax for your report.
Understanding your business credit score range can help you secure funding for startup expenses and company expansion. You can be more aggressive in negotiations with lenders when you have a good score and can take steps to improve it before taking out a loan if you have a poor one. Don’t be afraid of your credit score—use it to make sound financial decisions for your business!