How to Build Your Business's Credit: Steps You Can Take

Just like individuals, businesses can receive credit scores. A good score can help a business obtain a loan, a cash advance, or a line of credit at a reasonable interest rate, but a poor score might lead to unattractive financing terms or even block access to credit altogether. Below we summarize how a business credit score is determined and offer several ways your business can to improve its numbers.

Overview of Business Credit Scores

Several business credit scoring systems are in common use. They include:

1. Dun & Bradstreet (D&B): It provides two systems:

  • Paydex: Estimates a business’s likelihood to pay lenders, vendors or suppliers on time, based upon historical trade references (i.e., the timeliness of business-to-business credit-based payments).
  • Commercial Credit Score (CCS): Predicts the likelihood a business will be delinquent in paying its bills, based upon statistical, financial, demographic, and public filing data.

2. Equifax Business Credit Report: It provides three scores in a single business credit report:

  • Payment Index Score: Indicates how well you pay on time, based on history of payments to creditors.
  • Business Credit Risk Score: Estimates repayment risk, based upon past delinquencies, credit utilization, and more.
  • Business Failure Score: Predicts likeliness a business will go under in the next year.

3. Experian Intelliscore Plus: Estimates likelihood of repayment based upon 800 variables pertaining to credit history, legal filings, and industry data.

4. FICO Small Business Scoring Service (SBSS): Used by lenders and lessors to evaluate creditworthiness, using both personal and business credit histories. FICO incorporates data from both consumer and business credit bureaus, including the ones listed above, to generate a score.

What Information Do the Business Credit Bureaus Consider?

Although their methodologies differ, the various business credit score systems assess some or all of the following factors:

  • On-time payments to vendors and creditors: Rewards payments made ahead or on time with a good score, but late, delinquent, and charged-off payments will negatively affect your scores.
  • Credit history: Looks at the number, size, and age of credit accounts, including repayment history, credit utilization, and number of credit inquiries.
  • Firmographics: Examines company demographics, including industry, age, and size.
  • Public records: Takes into account negative records, including judgments, convictions, liens, bankruptcies, foreclosures, and garnishments.
  • Personal history: Evaluates personal credit histories of owners/principals, especially when the business is new.
  • Financials: Scrutinizes balance sheets, income statements, and other financial reports.
  • Other data: Includes data from credit-card companies, collection agencies, marketing databases, and more.

What is a Good Business Credit Score?

Each scoring system has its own range of scores. Here’s how to interpret them:

Credit Scoring ModelWorst ScoreBest ScoreGood Score
D&B Paydex110080
D&B Commercial Credit Score101670530
Equifax Business Credit Risk Score101992566
Equifax Business Failure Score100018801500
Equifax Payment Index Score010090
Experian Intelliscore Plus110076
FICO SBSS Score0300180

What Steps Can You Take to Improve Your Business Credit Score?

Here are some score-building tips to use if your business numbers are not all they should be:

Register with the bureaus, if necessary: Some of the credit bureaus, such as Dun & Bradstreet, won’t issue you a credit score unless you register your company with them. For example, D&B will issue you a nine-digit D-U-N-S identifier once you register to establish your credit report. Check each of the credit agencies for their requirements.

Check your current reports: Errors, especially derogatory ones, can needlessly depress your credit scores. Each of the credit agencies will send you a copy of your report upon request (usually for a fee) that you can examine for mistakes. If you find any errors, dispute them with the agency and the creditor; check with each agency on how to proceed.

Establish trade experience: Your business usually needs trade experience (i.e., instances of borrowing, leasing, or purchasing products or services on credit) to receive a credit score. For example, D&B requires a minimum of four instances. You can do this easily if you use vendors and suppliers, but it might be harder if you don’t. In that case, see about opening credit accounts (with financing terms) with your attorney, accountant, local office supply store, and local computer store. Recent instances of trade experience carry more weight than do older ones, so you always want to have several instances that go back less than two years.

Get your financials into shape: Some scores look at your financial reports. If you haven’t already done so (and you should have), calculate important financial ratios, such as profits/sales, profits/debt, working capital ratio or debt service coverage ratio. If you find ratios that are below the averages for your industry, address the problem. This will help your business in several ways, including your credit score.

Pay ahead of time: Some scores reward you for paying your credit-based bills before they are due. Unless you actually need the additional time, it’s a good idea to pay early, and in no case should you ever miss a payment deadline. Late payments can cripple your credit score, so find ways to avoid them.

Reduce credit utilization: Credit utilization is the amount of credit you are using versus the amount you’ve been approved for, such as when you open a revolving line of credit. Utilization rates below 20% are generally helpful, while those above 40% can hurt your score.

If you are looking for the methods that can improve your business credit score the quickest, consider registering your business with the credit agencies, establishing and using trade accounts, paying down your debt, and fixing your credit reports. It will usually take a minimum of three months to see the improvement, and it might take up to a year. Keep the avenues of communication open with the credit agencies so that you can periodically check your progress, evaluating any changes you’ve made to your business and its debt.

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