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Understanding Business Credit Scores vs. Personal Credit Scores

Just like personal credit scores, business credit scores indicate to lenders, credit agencies, vendors or suppliers just how reliable you are when it comes to borrowing money. It’s important to build business credit outside of your personal, even though that can be tricky if you ARE the business. Keep reading to learn how to establish strong business credit and more.

What is a credit score?

A credit score is a number that shows lenders how likely you are to pay back a borrowed loan on time. Companies use a mathematical formula known as a scoring model to calculate your credit score from the information in your credit report. This includes factors like your bill paying history, current unpaid debt, your total number of loans and their types, account history, available credit, and whether you’ve ever filed for bankruptcy or have foreclosed. Companies will use all these details to decide whether or not they’ll offer you a credit card, car loan, mortgage, or any other credit product. Your credit score will also determine your interest rates on loans and your credit limit. The higher the score, the better chances you have to qualify for a loan. Credit scores typically range from 300-850.

The difference between business & personal credit scores

Your personal credit score is a single number used to help creditors and lenders see where you stand financially. It’s necessary to rent an apartment, buy a car, apply for student loans, and pretty much every facet of life! 

Personal credit scores fall between 300-850. They are also considered private information and can only be accessed during specific situations, whereas anyone can check a business credit score to see where they rank. And lastly, a personal credit score is connected to your Social Security number while a business credit score uses an Employer Identification Number (EIN). This helps keep your personal financial information private while you build business credit.

A business credit score does pretty much the same thing, but it applies to businesses instead of an individual. They can include details about a company as a whole, such as how many employees there are, payment history, account information, accounts owed, and any historical data pertaining to the business. Both have their own numerical scale.

Business credit reporting agencies & scores

There are a few major business credit bureaus that report on business credit scores. Lenders and other potential business partners will use your score to help decide if they want to do business with you. Here’s a breakdown of each bureau:

Intelliscore℠ Plus from Experian

Experian Intelliscore Plus helps businesses, vendors, investors, and potential creditors make a well-informed decision about whether or not they should do business with a company. They use a “blended model,” something completely unique to Experian, to determine a credit score number between 1 and 100. It’s based on personal credit and business data, which is a good option for new businesses who don’t already have established business credit. Plus, while the other major bureaus have their own proprietary credit scores, this number is completely created and sold by Experian. 

Equifax Business Delinquency Risk Score

Equifax uses business financial data, public records, and credit payment history to assign a business credit score, which ranges from 101 to 992. This score indicates the probability of a business becoming delinquent in 12 months time. They also create a business failure score, which ranges from 1,000 to 1,610, and predicts if a business will go bankrupt within 12 months. The lower the score, the higher the risk. Equifax also provides business identity reports that confirm a company’s existence and key business details such as a company’s tax ID, the number of employees, and their annual sales volume.

Dun & Bradstreet PAYDEX

Dun & Bradstreet is a data system that contains millions of business records. They collect data from suppliers, creditors, and other sources such as public records to create a D&B score known as the Paydex score. It ranges from 1 to 100 and indicates how well a company pays its bills. The higher the score, the better the payment history. They also run risk evaluation’s to show a company’s financials, business size and age, their trade payments, and overall risk of payment behavior. For D&B to collect data about your business, you’ll need a DUNS number. Lenders and other business entities can use this number when checking your credit.

FICO® LiquidCredit® Small Business Scoring Service℠ (FICO SBSS)

This is one of the main business credit scoring systems. Their range is between 0 to 300, with 300 being the highest, and shows your creditworthiness and potential to pay back loans. It’s required by The U.S. Small Business Administration (SBA) for lenders to use this score to prescreen loans of $350,000 or less, as well as any Community Advantage loans. If your score is below the required threshold of 155 (as of October 1, 2020), then your loan application must go to a manual approval. This score is calculated based on your personal and business credit history, as well as any other financial information about you.

How business credit is reported

Your business credit is based on information that your bank and other companies you work with send to credit bureaus who then create a report for you. It will include general company information, your business size, and risk, as well as your payment history, account details, public record, and outstanding debts.

How business credit scores are calculated

Business credit scores can be determined by a number of factors, depending on the reporting agency. Some common factors that affect your business credit file are:

  • Number of trade experiences and age of credit
  • Debt and debt usage
  • Payment history
  • Credit utilization
  • Trends over time
  • Industry risk, Standard Industrial Classification codes and the size of the business

Finding and correcting errors on business credit reports

It’s very important that your credit report is accurate because it has everything to do with how much money your business can borrow, and how much you’ll pay to borrow it. If you see information on your report that’s incorrect, immediately contact your credit bureau and the business that reported the inaccurate information. Inform them that you want to dispute the information, which has to be done in writing. Include supporting documentation to prove why you think your report is wrong. And keep records of everything you send! The credit bureau will then have 30 days to investigate. 

How to improve your business credit score

Improving your business credit is actually fairly similar to how you would increase your personal score! Here are a few steps to take:

Open a business line of credit (if you haven’t already)

A business line of credit is very similar to a credit card. It gives you access to a set amount of capital that can help you finance expenses, like payroll and inventory. You then pay interest on the money that you draw. If you don’t already have a business line of credit, you can apply for one at a bank, credit union, or online lender. They’ll ask for financial documentation like your personal and business tax returns, bank statements, and business statements like a profit and loss sheet. Then you can begin to build business credit as you borrow money and pay it off in a timely manner. That said, don’t max out your business credit card!

Pay your creditors on time

Payment history has a huge impact on your credit score! Perhaps more than anything else. Pay all your business expenses and bills on time (or early if you can).

Check your credit report for errors

Keep an eye on your business credit score. Take responsibility for yourself and monitor your credit over time to see if anything updates or changes. If you see any signs of scam or fraud, be sure to tell the Federal Trade Commission (FTC).

Abigail Masterson

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