Business owners often rely on their personal credit when applying for a loan or business credit card. But they may not be aware of another credit score that matters: their business credit score.
If you're not paying attention to your business credit score, you could be unknowingly hurting it.
What is a business credit score?
Like a personal credit score, a business credit score is a numeric representation of your business's potential credit risk. Lenders, vendors and even potential customers may use your business credit score to access crucial details, like payment history and company information, when deciding whether or not to work with you. Finding a business loan with poor credit is challenging enough, and if you add a low business credit score in the mix, you can severely limit your financing options.
While personal credit scores range from 300 to 850, business credit scores aren't as consistent. Their range depends on the company calculating the score.
Four primary credit scoring agencies provide business credit scores:
- Dun & Bradstreet – D&B's PAYDEX Score ranks business credit scores from 0 to 100 and is based on your business's past payment history.
- Equifax – Equifax provides three business credit scores:
- The Business Credit Risk Score ranges from 101 to 992 and is based on credit utilization, past delinquencies and length of credit history.
- The Business Failure Score ranges from 1,000 to 1,610 and assesses the risk that your company will go out of business.
- The Payment Index ranges from 0 to 100 and measures your payment history to creditors.
- Experian – Experian's Intelliscore Plus ranges from 0 to 100 and is based on your business's payment history, public records filings, collections and business background information.
- FICO – The FICO Small Business Scoring Service (SBSS) ranges from 0 to 300. The U.S. Small Business Administration (SBA) uses the SSBS to pre-screen applicants for its 7(a) loan program. FICO bases your score on data collected from Equifax, D&B and Experian.
Whichever scoring model you use, the higher your score, the better your business credit.
How to find your business credit score:
Another way business credit scores differ from personal credit scores is how easy they are to access. Nobody can check your personal credit without your permission, but anyone can view your business credit score for any reason.
That's why it's so important to check your score regularly: so you'll know what potential lenders, vendors and customers will see.
You can order your business credit report from each of the three major business credit reporting agencies, but expect to pay for the privilege. Unlike personal credit reports, which consumers can receive annually free of charge, you generally need to pay for business credit reports.
- Dun & Bradstreet – Ordering a business credit report from D&B costs between $61.99 and $189.00, depending on the level of detail you want to see included in the report.
- Equifax – Ordering a single Equifax business credit report score costs $99.95 (a pack of five reports will cost you $399.95).
- Experian – Ordering your Experian business credit report and score costs $49.95.
You can't order a copy of your FICO SBSS score. When you apply for a loan, your lender requests your SBSS score, and FICO sends a report to your lender.
7 ways you can hurt your business credit score
Deciding on the best form of financing for your business can be a challenge, but don’t shoot yourself in the foot with these bad practices.
1. Maxing out your business credit card
Some business credit scoring models consider your credit utilization rate — or the amount of credit you're using divided by your total available credit. For example, if you have a business credit card with a $1,000 limit and a $300 balance, your credit utilization rate is 30%.
If you max out your business credit card, your utilization rate will be high — even if you pay the balance in full each month. That can actually harm your business credit score.
Credit bureaus favor businesses that keep their credit utilization ratios under 30%, so avoid charging more than that percentage of your card's credit limit.
2. Missing loan payments
Just like personal credit, one of the key factors in calculating your business credit score is payment history. If you fail to make on-time payments on a business loan, you’ll likely see your score drop.
3. Ignoring errors on your business credit report
Mistakes happen, and they can impact your business credit score if you don't dispute any inaccurate information included in your business credit report.
It's not unheard of for a business credit report to include accounts that belong to another company or incorrect information about the industry in which you operate or length of time you've been in business.
So, review your business credit reports for errors. If you find any, each agency has a dispute resolution process you can follow to request a correction.
4. Applying for new credit too often
Some credit scoring models take into account the number of business credit inquiries on your account. Applying for several new business credit cards or loans within a short period signals to the credit rating agencies that you're having financial difficulties, and they’ll perceive you as higher risk.
5. Not using business credit at all
Even if you don't need financing, it's still a good idea to establish business credit history. Federal agencies, some state and local agencies and many larger companies screen potential partners and vendors by checking their business credit. If you want to open the door to these potentially lucrative contracts, building business credit is essential.
6. Exposing your business to identity theft
Most people know they need to safeguard their Social Security number and other personal information to avoid identity theft, but you might not be aware that business identity theft can happen, as well.
Business identity theft can occur when criminals steal information, such as your business's tax identification number, and use it to open credit lines or get business loans. To avoid falling victim to business identity theft, safeguard sensitive company information and monitor your business credit regularly.
7. Working with vendors that don't report to the business credit rating agencies
Many vendors don't report to the business credit rating agencies at all, so your history of on-time payments may be doing nothing to help your business credit score.
If you want to make sure your payment history counts, open a vendor account with a company that reports to one of the three agencies listed above. Office suppliers Quill and Uline, for example, both offer trade accounts that will show up on your business credit report.