Understanding Business Credit Reports

business credit score
Strong business credit scores are the key to getting your company approved for trade credit and financing. Every business has credit scores, as well as business credit reports. In the same manner that your personal scores serve as financial ratings, your business credit scores rank the creditworthiness of your business.

Several factors go into the calculation of these figures, which can range from 0 to 100, with scores of 75 or more indicating excellent credit. Credit scores are calculated by reporting agencies such as Dun & Bradstreet and Experian.

Factors that determine business credit scores

Your business’s credit scores are calculated from various traits about your company and its financial history. Here are some of the variables:

  • Credit utilization ratio
  • Payment history
  • Length of credit history
  • Outstanding debts
  • Public records, such as bankruptcies, liens and judgments
  • Company size
  • Industry risk

Notice that while most of the factors are similar to those used to calculate your personal credit scores, others are unique to business credit scores.

Signup Lightbulb Hillcrest Financial is a power source for both personal and business credit building solusitons, with advice on how to build your business credit, obtain funding, and save money. Get Started For Free

 

The different business credit scores

Each bureau can have different information on file for the same person or business, and wind up producing a different score. That’s why you’ve probably noticed your score vary from bureau to bureau. Let’s take a look at 4 of the most common business credit scores:

The Dun & Bradstreet PAYDEX Score

According to D&B, the PAYDEX is a unique, dollar weighted indicator of a business’s payment performance based on the total number of payment experiences in Dun & Bradstreet’s file. The Dun & Bradstreet PAYDEX ranges from 1 to 100, with higher scores indicating better payment performance. PAYDEX is primarily used by vendors and suppliers to judge your business when determining what terms to extend on trade credit (e.g., net 30, net 60, etc.) Typically, the better the score, the more generous the terms extended. This is important because having more time to pay your bills can help you better manage cash flow.

Paydex Range: Paydex Risk Interpretation:
80 – 100 LOW risk of late payment
(averages prompt to 30 days within terms)
50 – 79 MEDIUM risk of late payment
(averages 30 or less beyond terms)
0 – 49 HIGH risk of late payment
(averages 30 to 120 days beyond terms)

 

Paydex Score: Explanation:
100 Payment comes 30 days sooner than terms
90 Payment comes 20 days sooner than terms
80 Payment comes on terms
70 Payment comes 15 days beyond terms
60 Payment comes 22 days beyond terms
50 Payment comes 30 days beyond terms
40 Payment comes 60 days beyond terms
30 Payment comes 90 days beyond terms
20 Payment comes 120 days beyond terms
1 – 19 Payment comes over 120 days beyond terms

Intelliscore PlusSM from Experian

According to Experian, Intelliscore Plus℠ is a statistically based credit-risk score that can combine business and proprietor credit data to predict the likelihood of serious delinquency in the next 12 months. Score range from 1 to 100, where lower scores (Score Range below) indicate higher risk. Risk is very low in the first two risk classes, risk class 3 is average, and classes 4 and 5 present above-average risk levels. The Intelliscore PlusSM is regarded in the credit industry as quite predictive and economical. It incorporates statistical modeling using over 800 commercial and owner variables – including tradeline and collection information, recent credit inquiries, public filings, new account activity, key financial ratios and other performance indicators.

Score Range Risk Class Risk Description
76 – 100 1 Low
51 – 75 2 Low – Medium
26 – 50 3 Medium
11 – 25 4 High – Medium
1 – 10 5 High

Experian® uses standard industry and government guidelines for keeping data on file. Dating data ensures that the information presented in a report is current enough to create an accurate picture of financial health.

  • Trade data: 3 years
  • Bankruptcies: 9 years and nine months
  • Judgments: 6 years and nine months
  • Tax liens: 6 years and nine months
  • Uniform Commercial Code filings: 5 years
  • Collections: 6 years and nine months
  • Bank, government and leasing data: 3 years

 

The Equifax Business Scores

Equifax occupies a middle ground when it comes to scoring. On the one hand, like D&B, it primarily takes payment histories into account in calculating your score. On the other, like Experian, Equifax takes both trade and lending history into account in scoring your business, making it a popular choice among banks and lenders.

There are 2 Equifax business credit scores:

  • Business Credit Risk Score (101-992 range)
  • Business Failure Score (1000-1880 range)

The Business Credit Risk Score (BCRS) evaluates that likelihood of a business being severely delinquent (more than 90 days overdue) on financial obligations. The higher the score the better. Equifax calculates this score by looking at such factors as 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 (BFS) assesses the likelihood of your business going bankrupt or closing down in the next 12 months. This score takes into account the same factors as the BCRS and also looks at your most negative payment transactions in the last year. The higher the score the better it is.

Equifax uses multiple scoring options to predict a businesses likelihood of default or failure within the next 12 months. Scoring models include:

  • Business Delinquency Financial Score™—An optimal solution for financial institutions that want more “scoring power,” this score predicts the likelihood of severe delinquency on financial accounts. This score offers an option to include both consumer and commercial credit information and receive a blended score when both data sets are available.
  • Business Delinquency Financial Risk Class™—Best for financial institutions that want a straight-forward scoring approach, this score predicts the likelihood of severe delinquency on financial accounts, grouping businesses into risk categories 1 through 5.
  • Business Delinquency Score™—A powerful risk assessment solution for any organization, this score predicts the likelihood of severe delinquency on any account. This score offers an option to include both consumer and commercial credit information and receive a blended score when both data sets are available.
  • Business Delinquency Risk Class™—Popular for basic risk assessment, this score predicts the likelihood of severe delinquency on any account, and groups businesses into risk categories 1 through 5.
  • Business Failure Score™—An ideal solution for any organization that requires a greater level of detail regarding the potential for failure. With this score, lenders also receive: Business Failure Risk Class – which groups businesses into risk categories 1 through 5 – Business Failure National Percentile – indicating where a company falls compared to other businesses in the Equifax commercial database – Failure rates – indicating how many businesses out of 10,000 in the same risk class are expected to fail as well as how many businesses out of 10,000 nationally are expected to fail.
  • Suggested Credit Limit for Suppliers—This guideline is based upon the credit amount historically extended to those with similar firmographics and risk profiles from other suppliers
  • Suggested Credit Limit for Business Credit Cards—This guideline is based upon the credit amount historically extended to those with similar firmographics and risk profiles from other commercial card lenders.
  • Suggested Credit Limit for Loans—This guideline is based upon the credit amount historically extended to those with similar firmographics and risk profiles from other commercial loan lenders.

Equifax goes through great lengths to calculate your businesses likelihood of becoming delinquent. Sadly, your business may actually perform well financially, but because of their scoring models, you may be limited to loan amounts or approval based off of industry standards based off of similar companies within their business database.

FICO® LiquidCredit® Small Business Scoring Service℠

FICO’s Small Business Scoring Service (SBSS) rank-orders applicants by their likelihood of making payments on time. The score ranges from 0 to 300. The higher the score, the better. The scoring is based upon personal and business credit history and other financial information. A strong history of business credit with timely payments to vendors and suppliers may help boost your SBSS score. TheFICO SBSS score will be used for term loans, lines of credit, and commercial loans up to $350,000 from the Small Business Administration (SBA). The minimum score to pass the SBA’s pre-screen process is currently 140.  We believe this video is the most important as the SBSS scoring model is become more widely used through the industry.  Position your business accordingly.  Please watch:

“Smart creditors are taking advantage of new blended commercial scoring tools that integrate both personal and business credit attributes to assess and predict business credit risk.” – Experian

How business credit scores are used

Lenders and other creditors need a means of determining how well your business repays debts before they will approve you for financing. This is where business credit scores come in. Higher scores indicate to creditors that your business is more trustworthy, thereby improving the odds that it can obtain financing. Lenders can check your company’s business credit reports to get more detailed information about your business’s financial history, and business credit scores serves as shorthand evaluations. The rating can also let you access more credit than you could receive when applying for financing with just your personal scores.

The importance of checking your business credit score

As a business owner, you should review your company’s financial information on a regular basis, including your business credit score. Your scores are fluid and can change over time. That’s why creditors tend to assess your creditworthiness on a continual basis. If you notice your trade credit scores are low, there could be an error in the credit reports that caused an inaccurate calculation. It is also possible that your business does not have sufficient credit history to warrant higher scores. If you do find an error, contacting the credit agency that generated the score is key to getting a correction. If there aren’t any errors, you can still improve your business’s credit scores by making on-time payments and lowering the company’s credit utilization ratio, among other options, but it will take some time.

Whether you’ve just started a business or been in the game for years, building a strong credit profile is essential to stay competitive. That’s why we’ve got the tools necessary to help you build business credit that rocks! Get Started For Free.

How can I improve my business credit score?

No doubt, understanding how and when business credit scores are used can be confusing. Luckily, keeping your scores strong is actually simple. It’s a lot like taking care of your personal credit:

  • Pay your business bills on-time or before they’re due.
  • Open multiple credit accounts (business credit cards, trade lines, loans).
  • Keep your credit utilization around 25% (don’t max out your credit lines).

Business Credit Reports

Just as you’d view your personal credit report to check your financial history, the same information can be reviewed for your business. That’s because the minute you start a business, credit bureaus begin to develop a credit report on your company. They do this by scouring public records and other financial data.

Then, when you receive a business loan or line of credit — sometimes called trade credit — information about your payment history is compiled by one of a few business credit reporting bureaus and providers, including Dun & Bradstreet, Experian, Equifax and FICO and turned into a business credit score.

Get Started Today Building Your Business Credit Profile