As a small business owner, you’re likely familiar with the concept of personal credit scores and how they can impact your financial life. But did you know that your business also has its own credit score?

Your business credit score plays a crucial role in your ability to secure financing, negotiate favorable terms with suppliers, and even win new business. Curious about what a business credit score is, why it matters, and how you can improve yours? Read on!

What is a Business Credit Score?
A business credit score is a numerical representation of your company’s creditworthiness. It’s based on various factors, including your payment history, credit utilization, length of credit history, and more. Just like your personal credit score, a higher business credit score indicates lower risk to lenders and suppliers, making it easier for you to access financing and other resources.

Business credit scores are typically provided by specialized credit reporting agencies that focus on business credit. The major business credit reporting agencies include Dun & Bradstreet, Experian Business, Equifax Small Business, and Creditsafe. These agencies collect and analyze data related to your business’s credit transactions, payment history, and other factors to generate a business credit score. While they operate similarly to personal credit reporting agencies like TransUnion and Experian, they are separate entities that specifically assess business creditworthiness.

How are Businesses Rated?
Business credit scores and personal credit scores are rated differently and use different scales. Personal credit scores, such as FICO scores, typically range from 300 to 850, with higher scores indicating lower credit risk. On the other hand, business credit scores often have different ranges depending on the credit reporting agency. For example, Dun & Bradstreet’s PAYDEX score ranges from 0 to 100, with higher scores indicating better payment performance. Experian’s Intelliscore Plus ranges from 1 to 100, with higher scores indicating lower risk. Equifax’s Business Credit Risk Score ranges from 101 to 992, with lower scores indicating higher risk.

Each credit reporting agency has its own methodology for calculating business credit scores, so it’s important to understand the specific range and factors that affect your business’s score with each agency.

Why Does Your Business Credit Score Matter?
Your business credit score can impact your ability to:

  • Secure financing: Lenders use your business credit score to determine whether to approve your loan application and what interest rate to offer you.
  • Negotiate terms with suppliers: A strong business credit score can help you negotiate better payment terms with suppliers, such as longer payment terms or discounts for early payment.
  • Win new business: Some clients may check your business credit score before deciding to do business with you, especially for larger contracts or ongoing partnerships.

How to Improve Your Business Credit Score
Improving your business credit score takes time and effort, but it’s well worth it. Here are some steps you can take to boost your score:

  • Pay your bills on time: Timely payments are one of the most important factors in determining your business credit score. Set up reminders or automated payments to ensure you never miss a deadline.
  • Monitor your credit utilization: Keep your credit card balances and other debt levels as low as possible relative to your credit limits. High credit utilization can negatively impact your score.
  • Establish a credit history: If you don’t already have a business credit history, consider opening a business credit card or line of credit and using it responsibly.
  • Check your credit report regularly: Errors on your credit report can drag down your score.
  • Check your report regularly and dispute any inaccuracies.

Why You Need to Work with an Expert Small Business-Focused Accounting Firm
Managing your business credit score can be complex, especially if you’re juggling multiple responsibilities as a small business owner. Working with an expert accounting firm that specializes in small businesses can help you navigate the intricacies of business credit scores and ensure you’re taking the right steps to improve yours. SK CPAs and Business Advisors is dedicated to helping small businesses like yours thrive financially. Click here to schedule a free consultation today and see how we can help you achieve your business goals.