Most business owners know their personal credit score. But according to a survey by Nav, nearly half of small business owners don’t know that they also have a business credit score, which measures how well the business pays its bills.
Having a good business credit score can help you qualify for low rates on a business loan and favorable payment terms from suppliers.
This article will give you a crash course on business credit, providing an overview of why it is important, how to establish business credit and get a copy of your business credit report, and how to raise your business credit score.
Why Should I Care About My Business Credit Score?
If you are a typical small business owner, you have a thousand things competing for attention. So why should you give any thought to your business credit score?
Because good business credit can decrease your cost of doing business in these ways:
- Qualify for the best rates on business loans. Business owners that understand their credit scores are 41 % more likely to qualify for loans and credit cards than those who don’t. Creditworthy businesses tend to get the largest amounts of financing and the lowest interest rates.
- Get good payment terms from suppliers. Suppliers are more likely to grant favorable payment terms to businesses with good credit.
- Reduce reliance on your personal credit score. If you have good business credit, suppliers and lenders may extend you credit without checking your personal credit history. That way, your business won’t suffer even if your personal credit is weak.
Who Tracks My Business Credit Score?
Dun & Bradstreet (D&B), Experian, and Equifax are the big 3 business credit bureaus.
Each agency has its own method of scoring businesses. Here is a rundown of the differences:
score is better)
*Financial Stress Score:
0-5 (lower is better,
but 0 means bankruptcy)
*Commercial Credit Score:
0-5 (lower is better,
but 0 means bankruptcy)
Credit Ranking Intelliscore:
0-100 (higher is better)
Credit Risk Score:
Business Failure Score:
Is Used to
Primarily your payment
history with suppliers
Cost to Get
Get it on
Get it on
How to Establish
Your Credit File
and provide at least
3 trade references
when your business
when your business
It’s important to establish credit with all 3 agencies because they are each used in different circumstances. While suppliers tend to prefer D&B, banks and other lending institutions prefer Experian and Equifax.
How Do I Establish Business Credit and Get a Copy of My Business Credit Report?
Establish A Credit File
Before you can get a business credit score, you need to establish a credit file with at least one bureau.
In most cases, you don’t need to do anything to establish a credit file with Equifax or Experian. These agencies automatically check for new business filings in every state and comb through public records. According to Caton Hanson, Co-Founder and Chief Counsel of business and personal credit monitoring platform Nav, your business can be scored based solely on information in such records.
Establishing credit with D&B takes a bit more work. First, you need to get a D-U-N-S number, which gets you added into D&B’s business database. Getting a D-U-N-S number is free and can be done through D&B’s website or Nav.
Next, you need to provide at least 3 trade references. Trade references, similar to employment references when applying for a job, come from suppliers and lenders that you’ve worked with.
You may get trade references by asking suppliers and creditors that you have a positive relationship with to report your payment activity to the credit bureau. Alternatively, if you subscribe to D&B’s CreditBuilder service for $99/month, D&B will contact your trade references on your behalf to verify that you are a customer and have been paying on time.
Get a Copy of Your Business’s Credit Report
After establishing a credit file, you should get a copy of your business credit report. In contrast to consumer credit reports–which you are entitled to get for free once a year–business credit reports cost money.
You can get a one-time report directly from the agency:
- D&B – Buy report starting at $61.99
- Experian – Buy report starting at $36.95
- Equifax – Buy report starting at $99.95
To monitor your credit on an ongoing basis and get alerts as your score changes, it’s best to use an online credit monitoring service. We recommend Nav because they allow you to continuously monitor your personal and business credit reports in one place. Nav gives free access to your personal credit score. To get your business credit score, there is a $29.99 monthly fee.
Is My Business Credit Score Good?
Business credit scores are more complicated than personal credit scores, which fall in the familiar 300-850 range. Each business credit bureau scores businesses in its own way. Whether a business credit score is “good” depends on the agency that provides the score and the scoring model that it uses.
The most well-known business credit score is D&B’s Paydex score. It ranges from 1-100. Generally, anything above 80 is considered to be a good Paydex business credit score. The score is based strictly on how a business pays its bills to vendors.
D&B also has a Financial Stress Score (FSS) and Commercial Credit Score (CCS), both of which range on a 0 to 5 scale. By comparing you to other businesses in your industry, these scores predict the likelihood of your business failing or becoming severely delinquent in payments over the next 12 months. The lower your FSS or CCD are, the better, with the exception of zero which means out of business or bankruptcy.
Experian has only one business credit score, called the Credit Ranking Intelliscore. It ranges from 0-100. Similar to Paydex, scores above 80 indicate good credit. However, Intelliscore is more comprehensive and some say more predictive than Paydex because it accounts for more than trade payment history. Also factored into the score are your payment history with lenders, public records (e.g. company size, number of employees, etc.), financial performance of the business, and other performance indicators.
Equifax’s primary Credit Risk Score ranges from 101-992. The higher the score the better. Equifax calculates this score by looking at your available credit, how much credit you’ve used, how many payments you’ve missed in the past, and the length of time since your oldest financial account was opened.
The Business Failure Score, ranging from 1000-1,880 (higher is better) assesses the likelihood of your business going bankrupt or closing down in the next 12 months. This score looks primarily at transactions where you’ve paid late.
There is one last business credit score you should be aware of, especially if you’re applying for a bank loan or an SBA loan. It is called the Small Business Scoring Service score from Fair Isaac Corporation, the same company in charge of the popular consumer credit score model.
Lenders use the SBSS, which ranges from 0-300, to pre-screen applicants for SBA loans and standard bank loans. According to Nav, the cutoff for SBA loans is currently 140, and it’s a bit higher for other bank loans. The SBSS score is calculated based on data from both your business credit reports (from the other 3 agencies) and your personal credit reports.
You can find out your SBSS score by signing up for Nav’s Premium Plus plan.
How Do I Improve My Business Credit Score?
If there are errors in your business credit report, contacting the credit bureau will help resolve the problem and raise your score. If there aren’t any errors but you’re not happy with your business credit score, here are 5 simple steps you can take to improve it.
1. Separate Business and Personal Finances
Having separate bank accounts and credit cards for personal and business matters helps ensure that if something affects your personal finances, it won’t hurt your business credit score. Same goes for vice versa.
2. Get and Use a Business Credit Card, Line of Credit, or Lease
In order to have a good business credit score, you need to build up a history of prompt payments. Getting and using a business credit card is a good means to this end. You get the added bonus of earning cashback and rewards points. Ensure that you make timely payments, and if possible, pay more than the minimum monthly payment.
Alternatively, you can build business credit by getting a small business line of credit or an equipment lease. We can help you with this!
3. Choose Suppliers and Lenders That Report to the Business Credit Bureaus
Suppliers and lenders are not required to report to business credit bureaus. Whenever possible, choose vendors that voluntarily report to at least one major business credit bureau, particularly if you have a young business and are focused on building credit.
A good place to start is by asking your current suppliers and creditors if they report to the business credit agencies. Even if they don’t, your vendors may agree to start reporting because there’s no cost to them to do so.
4. Pay Your Bills Early or On Time
It might sound like we’re stating the obvious here, but in order to maximize your business credit score, you have to pay all your suppliers and lenders on time. For the highest scores, pay early. The bulk of your business credit score depends on how timely you pay parties that you do business with.
5. Consolidate High Interest Business Debts
Small business debt with high interest rates or high-frequency payments, like weekly or even daily payments, are so dangerous for small business owners. Not only does this kind of debt make default more likely, it also increases the chances that you need to continue borrowing and never get out of debt. Small business debt consolidation loans can result in a single low-rate loans with a monthly repayment schedule.
6. Don’t Use Too Much Credit
The less credit you use out of the credit you have, the better your business credit score will be. For example, if you have a $1 million business line of credit, there’s no need to use it all. By using less, you show creditors that your business is doing well enough financially that you don’t have to max out your credit line.
Beyond the Score: Other Important Information In Your Business Credit Report
Your score is not the only important information in your credit report. In fact, a short while ago, we interviewed Levi King, CEO and Co-Founder of Nav, on our sister site Fit Small Business. He said that many small businesses are surprised to hear that the content of their business credit reports is just as or more important than their numeric scores. Below are a few things to look out for. For a more in-depth look at each section of your business credit report, click here.
Many business loans and lines of credit are secured by a lien on business assets. A lien gives the creditor the right to take those assets if you don’t pay back what you borrow.
You can only pledge your assets to one creditor, so having a lien on your credit report can prevent you from getting a second loan or line of credit for your business.
Sometimes, creditors forget to remove a lien from your report when you’ve paid off a loan. When you make your last payment, it’s wise to confirm with the lender that the account has been closed and the lien taken off your report so it won’t affect future attempts to get financing.
Bankruptcies and Collections
These are the troublesome things that every business owner hopes not to have on their business credit report. But if you do, you should know how to deal with it.
If you have had a previous business bankruptcy, it will be difficult to get a business loan or credit card in the future, particularly if it’s within the last 2-3 years. If you have a bankruptcy, one tip is try to get to a retail business card (e.g. a Staples card or Home Depot card) and build up your business credit that way. Such cards are typically easier to qualify for than a standard credit card or bank loan.
Similarly, if you’ve had accounts sent to collections, lenders and suppliers have less reason to trust you. You can minimize damage to your score by building up a positive payment history going forward.
SIC & NAICS Industry Codes
Every business has Standard Industrial Classification (SIC) and North American Industry Classification System (NAICS) codes, which show up on your business credit report. The codes are assigned based on data about your business in Census surveys and other public records.
Having the right code can sometimes mean the difference between qualifying for a loan and being rejected. For example, a company that makes real estate signs may be wrongly coded as a real estate investment firm. Real estate investment is a speculative, risky industry, so getting a loan will be a lot harder than if you were coded as a designer or sign maker.
You can change your codes by contacting the credit bureau. These are some examples of high-risk industries:
- Real estate investing and other types of investing
- Car sales
- Adult entertainment
- Travel/transportation industry
- Money lending/collecting
- Dry cleaners
Building your business credit score is one of the most important steps you can take as a small business owner. It opens up financing opportunities and business relationships that can help your business succeed.
It can be confusing to understand how business credit reports and scores work. This guide should provide a start. Small steps, such as paying your bills early and separating business and personal finances, can have a big impact on your business credit score.