What Is a Business Credit Score?

A business credit score, also called a commercial credit scor𝄹e, is a number that indicates whether a company is a ꦕgood candidate to receive a loan or become a business customer. Credit scoring firms calculate business credit scores  based on a variety of factors, including credit history, size and age, and legal woes.

How a Business Credit Score Works

If a company wants to take out a loan to purchase equipment, one factor the lender considers is the business’ credit score. The lender also looks at the business’ revenue, profits, assets and 澳洲幸运5官方开奖结果体彩网:liabilities, and the 澳洲幸运5官方开奖结果体彩网:collateral value of the equipment the company plans to purchase with the loan proceeds. In the case of a small business, the lender might check 澳洲幸运5官方开奖结果体彩网:both the businessꦆ’ and ow🐷ner’s credit scores, since the personal and business finances of small business owners are often closely intertwined.

The three major business 澳洲幸运5官方开奖结果体彩网:credit scoring firms are 澳洲幸运5官方开奖结果体彩网:Equifax, Experian, and 澳洲幸运5官方开奖结果体彩网:Dun & Bradstreet, and each uses a slightly different scoring method. Unlike consumer credit scores that follow a standard scoring algorithm and range from 300 to 850, business credit scores range from 0 to 100. The higher the score, the lower the risk. Experian calls scores above 75 “excellent.” Generally, a business will be seen to have 澳洲幸运5官方开奖结果体彩网:good credit if it pays its bills on﷽ time, stays out of legal trouble, and doesn’t incur too much debt.

How a Business Credit Score Is Calculated

Experian lists three main areas of interest in the calculation of business credit scores.

1. Credit: This is a company’s credit obligation information derived from its suppliers and lenders. It includes a business’ number of trade experiences, unpaid balances, 澳洲幸运5官方开奖结果体彩网:repayment history, 澳洲幸运5官方开奖结果体彩网:credit utilization ratio, and trends over time.
2. Public records: This is compiled from legal filings in local, county, and state courts and includes any liens, bankruptcies, or 澳洲幸运5官方开奖结果体彩网:judgments, with information on how recent they are, how often they have occurred, and their dollar amounts.
3. Demographic information: This refers to a company’s background information, including its size, years on file, and 澳洲幸运🀅5官方开奖结果体彩网:Standard Industrial Classification (SIC) code, which is assigned by the U.S. government. The data comes from many sources, including state filing offices, public records, credit card companies, 澳洲幸运5官方开奖结果体彩网:collection agencies, corporate financial information, and marketing databases.

All of the above information is used in combination with other data, including “actual trade payment experiences submitted by payees, [other] public record information, collections information, and company background and comparative data that places a company’s payment performance in context within its industry,” according to Experian. Ultimately, your score is arrived at using “a statistically derived algorithm [that is] designed to determine risk.”

How to Use a Business Credit Score

What if Company A is considering taking on Company B as a client and wants to know the likelihood that Company B will pay its invoices in full and on time? No business wants to do hours and hours of work for a client only to receive no payment. Company A can check Company B’s business credit score first, then agree to do business only if Company B’s credit score shows that it has a strong history of paying its suppliers. Company A can even purchase a subscription service to monitor 🐷Company B’s credit score on an ongoing basis. If the score drops significantly, Company A can lower its risk by discontinuing its business with Company B or requiring payment in advance.

Similarly, Company C, a wholesale supplier, might want to check the business credit score of Company D, a manufacturer, before shipping out a truckload of goods with an invoice granting Company D 30 days to pay. If Company D has a high credit sc🦩ore, this arrangement would seem to have low risk, but if it has a low credit score, Company C may want to ask for payment up front before shipping any goods.

How to Improve Your Business Credit Score

There is no guaranteed method of improving your business credit score, but there are certain practices you can follow that are likely to bolster it.

• Check your business credit report regularly: It’s important that the information in your report be true and timely.
• Pay your bills on time: Your payment history is a vital part of calculating your score.
• Maintain a healthy credit utilization ratio: This is the amount of your total credit that you are using expressed as a percentage. Anything above 30% is too high; 20% is probably a better goal.
• Do business with entities that report trades and payments to credit bureaus: Not all business creditors or vendors report their trade information or payments. Make it a point to try to work with those that do.
  

How ಞLong Does Negative Data Stay on My Bꦚusiness Credit Report?

As long as negative data remains on your business credit report, your credit score will be affected by it. Experian says that it “uses standard industry and government guidelines for keeping data on file," and lists these guidelines as:

The Bottom Line

Your business credit score is a professionally accredited measure assessed by the three main credit bureaus of how healthy (or unhealthy) your business is. It’s important because a poor score will affect 澳洲幸运5官方开奖结果体彩网:your ability to get loans and conduct business successfully. Ranging from zero to 100, the higher the score, the lower your business’ risk. You should always keep a sharp eye onꦫ it and your business credit report to make sure they are accurate, fair, and not in danger of becoming an impediment to your business’ future.