Business credit scores are similar to personal (FICO) credit scores. However, business credit scores measure the business’s creditworthiness rather than measuring an individual’s personal credit history. A good business credit score is important because it can help you get financing to solve cash flow requirements as well as support ongoing growth.
If you’d like to see your personal credit score for free as well as get 2 free business credit summary reports, head over to NAV. Checking your personal and business credit won’t hurt your scores. All you need is an email to see where you stand.
How Are Business Credit Scores Calculated?
Business credit scores measure your company’s creditworthiness. Your business credit score is calculated based on your business credit report. A business’s credit score typically ranges from 0 – 100, but can sometimes reach as high as 1,800 or more, depending on the type of score.
Business credit scores are issued by 3 major credit reporting agencies: Equifax, Experian, and Dun & Bradstreet. Each of these credit agencies has a different method for computing your business credit scores. However, all of the credit reporting agencies rely heavily on your business’s payment history to suppliers, creditors, and lenders.
We discuss how each credit bureau calculates your business credit score below:
Equifax Business Credit Scores
There are three different business credit scores that Equifax offers on its business credit reports. These business credit scores include the Payment Index, Credit Risk Score, and Business Failure Score. Let’s take a look at each in greater detail.
1. Payment Index
The Payment Index, which is measured on a scale of 100, reflects the number of on-time payments made by your company. Data from both vendors and creditors are included in this information. However, this does not predict future payment behavior, so the other two scores are still needed.
2. Credit Risk Score
The Credit Risk Score, ranging from 101 to 992, projects how likely your company will become delinquent on payments. The Credit Risk Score measures the following:
- Company size
- Available credit limits on revolving credit lines or credit cards
- Length of time since oldest financial account was opened
- Delinquent non-financial transactions (e.g. vendor invoices) or those charged off for two or more billing cycles
3. Business Failure Score
The Business Failure Score measures the likelihood that your company will fail and close down. It ranges from 1000 to 1880, and includes the following assessments:
- Length of time since oldest financial account was opened
- Credit utilization ratio for 3 most recent months
- Worst payment statuses for the past 2 years
- Delinquent non-financial transactions or financial transactions charged-off for 2+ billing cycles
Experian Business Credit Score
With Experian’s Business Credit Score, important information pertaining to the creditworthiness of your company is included, such as payment trends, account histories, and public records. It ranges from 1 to 100. Experian takes into account multiple factors when calculating the business credit score, including the following:
- Time in business
- Lines of credit applied for in the past 9 months
- New lines of credit opened in the past 6 months
- Collection amounts in the past 7 years
- Recent 12 months’ payment history
- 6 months’ worth of used lines of credit
- Percentage of available credit
- Number of late payments (late for 1 to 30 days, and late for 31 days or more)
- Number of non-net-30 lines of credit (i.e. credits that are due in either less than 30 days or more than 30 days)
Dun & Bradstreet Business Credit Scores
Dun & Bradstreet uses three kinds of risk measurement, which includes the PAYDEX Score, Credit Score, and Financial Stress Score. Let’s take a look at each one in detail.
1. PAYDEX Score
The PAYDEX Score, which ranges from 0 to 100, is based on payment data either directly reported to the bureau or reported through data-gathering companies such as collection agencies. This data is used together with the Credit Score and Financial Stress Score to determine how much a lender should extend to a company.
You need to get a DUNS number from the Dun & Bradstreet website to generate your PAYDEX Score (this is free). The bureau will require that you have records of your payments with at least 4 vendors. The PAYDEX Score shows whether your payments are delinquent, made on time, or made ahead of schedule.
The following is the PAYDEX scoring system of Dun and Bradstreet:
- 80 to 100: low risk for late payments
- 50 to 79: medium risk for late payments
- 0 to 49: high risk for late payments
2. Credit Score
The Credit Score is measured from 1 to 5, with 1 being the best score. The Credit Score ranks your business against other companies that have similar payment histories. The score reflects how often and likely you tend to pay on-time or default on payments in relation to your peers. It can help lenders interpret your business standing.
3. Financial Stress Score
The Financial Stress Score ranges from 1 to 5, with 1 being the best. It matches your business with other companies that share similar business and financial characteristics. It indicates how often your business makes on time vs. default payments in relation to your peers. The rating is based more on your business’s structure rather than payment history.
How to Check Your Business Credit Score?
To check your business credit score, you need to get a copy of your business credit report from any of the three major credit reporting agencies for a fee. The information below shows the estimated fees of each reporting agency.
Estimated Fees of The Three Credit Reporting Bureaus:
- Equifax: $100
- Experian: $37
- Dun & Bradstreet: $62
It is important to get a copy of your own business credit report and check it regularly to ensure accuracy of information. Any error may be corrected with the credit agency, but this can take time. For this reason, it’s necessary to check your business credit report even when you don’t need it so you still have enough time to correct errors, if any.
The ultimate purpose of a business credit score is to determine your company’s financial stability and creditworthiness. Your business is creditworthy when it can show a history of prompt payments. A good business credit score is necessary, especially when you apply for loans and/or negotiating payment terms with suppliers or vendors.
If you’d like to see your personal credit score as well as 2 free business credit summary reports, head over to NAV. Checking your personal and business credit won’t hurt your scores. All you need is an email to see where you stand.