Guide to Business Credit Scores and How to Check Them

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credit score meter

Last Updated on May 16, 2022

A good credit score plays a huge role when looking for business financing. If you are currently struggling with getting business financing, check your credit score. A poor credit score can limit you from gaining access to reasonable loan interest rates and limit the number of loans you qualify for.

If you want to increase your credit rate, start monitoring it using sources like Dun & Bradstreet, Equifax, and Experian.

After monitoring your credit, you can start making strategies to increase your credit rate, like paying bills on time and removing any wrong information from your credit report.

This guide gives you detailed information to help you understand credit scores and how to improve them. Let’s dive in.

What Is a Credit Score? What Is Its Purpose?

A credit score is a scoring model that predicts the creditworthiness of an individual or business. It is a three-digit number ranging from 300 to 850. Lenders use the score to determine the likelihood of a borrower paying back the money.

The higher the credit score, the higher the creditworthiness of a consumer. Therefore, borrowers with a high credit score are attractive to lenders and get their loans approved quickly.

According to lenders, borrowers with a credit score below 640 are risky lenders because their loans tend to attract a higher interest rate, and most of the time, they are eligible for short-term loans that require a co-signer.

A credit score of above 700 is good, and the borrowers get low-interest rates over a long repayment period.

How Are Credit Scores Different for Individuals Vs. Businesses?

Rating agencies -When determining creditworthiness for individual lenders, rating agencies use Equifax, TransUnion, and Experian for information. However, when determining creditworthiness for businesses, they use Experian, Equifax, and Dun or Bradstreet.

Rating range: The scoring for individuals is from 300 to 850, while the score for businesses is from 0 to 100.

Standardization: FICO or Vantage Score is mainly used for decision-making when lending to consumers. However, when making business lending decisions, the lenders develop their lending formula or use Dun & Bradstreet for decision-making.

Access: It is easy for consumers to access their credit score information from different sources for free. However, businesses have to pay a fee to get their credit score information.

Data: Business lenders check your business credit score before lending. However, some lenders will match both your individual and business credit score before making a lending decision.

How Are Business Credit Scores Reported? Who Reports Them?

Reporting agencies do business credit score reporting. Dun & Bradstreet is the most popular among business lenders because it has all the tools needed for making lending decisions.

However, D&B is more accurate because it reports how soon the business pays bills apart from giving information on payments.

How Do You Check Your Business Credit Score?

The best way to check your business credit score is by using reputable sources and tools. As previously mentioned, the three common sources are Dun & Bradstreet, Equifax, and Experian. They will charge a fee for getting credit information, but you get the correct information.

You will likely get some websites offering free business credit score reports when you search online. However, you need to be careful because most of them want your credit information.

What Are the Standard Credit Score Ranges?

Based on the model scoring the credit score, the ranges can vary. However, they generally follow this scoring pattern.

  • Poor: 300-579
  • Fair: 580-669
  • Good: 670-739
  • Very good: 740-799
  • Excellent: 800-850

Why Is Establishing Good Credit Important for Your Business?

Maintaining a good credit score has the following benefits:

Higher Approval Rates

A good credit score will make it easy for your business to get financing from different lenders. With a good credit score, you can choose the type of lender you want for financing. Plus, you will have a wide selection of lenders to select from and get the opportunity to choose the best.

Competitive Interest Rates

You will have access to competitive interest rates with a good credit score. Lenders are willing to offer low-interest rates for businesses with high credit scores. In addition, you have the freedom to choose low-interest rates from multiple lenders.

Friendly Terms

Businesses with good credit scores get better treatment from lenders. In addition, they are likely to receive friendly terms because they are not risky. For instance, such businesses are likely to get a longer repayment period, and the lender might not ask for collateral.

Good Business Reputation

A business with a good credit score is a reputable business. A good reputation is essential when doing business with other companies or finally deciding to sell the business.

What Factors Affect Your Business Credit Score?

Here’s what can affect your business credit score:

Business Profile

The number of years you have been in business can affect your credit score. Your business needs to register for credit as early as possible. Other things that they check include your business line and the size of your business.

Payment History

A payment history shows previous payments by the business and whether they are promptly made. Prompt payment by the business increases the credit score.

Collections and Tax Aliens

To calculate the business credit score, they will check collections and tax aliens by the business for the last seven years.

Business Credit Lines

Business credit lines for the last six months, including loans, invoice accounts, loans, and cards, affect your business credit score.

Similarly, credit inquiries for the last nine years or any credit inquiries affect it as well.

Methods for Improving Your Business Credit Score

You can improve your credit score with the following methods.

Monitoring Credit Reports and Report Any Wrong Information

It is advisable to monitor the credit reports regularly and report any wrong information entered. Sometimes a poor credit score results from inaccurate reporting that interferes with the data.

Not Closing Unused Accounts

Unused accounts might seem like a bother, but they are suitable for credit information. So keep them open as long as possible.

Making Payments On Time

The leading cause of poor credit for many businesses is late payments. Make sure that you make your payments on time, and you will notice an improvement in your credit score.

Encouraging Vendors to Report

Encouraging vendors to make positive reports can be beneficial to improving your creditworthiness because it adds to the positive data.

What Is the Bottom Line for Businesses Analyzing Their Credit?

Businesses analyzing their credit should consider using the right tools to determine their credit status. Dun & Bradstreet, Equifax, and Experian are the best tools to analyze credit because they offer reliable reporting.

After analyzing the credit score, the next step is to take action to improve it by paying bills on time and regularly analyzing their credit report.