Just as you have a personal credit score, you have a business credit score. It is important to your business that you understand this score. If you want to qualify for loans or other financial items, you need to have a solid credit score. Not knowing what is happening with yours can put you in a bad position. So, to help make things easier, here are the basic things you need know about your business credit score.
To begin, your business credit score is a representation of your financial history. However, it is calculated much differently than your personal credit score, so forget everything you know about credit scores. Your business credit score can tell lenders about your company’s financial history and standing. It is tracked by your employer identification number.
The score ranges from zero to 100 with zero being the lowest. It is tracked by three credit bureaus. These are Equifax, Experian, and Dun & Bradstreet. Each bureau has its own method for calculating your score, so your score can vary greatly from one to the next. It is also important to note that your business credit record is publicly available to anyone but any access, even by you, requires a payment to get the information.
As mentioned, each bureau calculates your score differently. They use a range of factors, some of which may be similar from bureau to bureau.
Equifax offers three assessments. The first is a payment index, which explains who well you have done paying back debt. The second is your credit risk score, which considers the size of your business, your credit history length, delinquencies and the available credit you have now to determine how much of a risk you would be to lend to. The last one is your business failure score, which, as the name suggest, tells how likely your business is to close. It uses information like the age of your credit history, delinquencies, current debt and payment statuses.
Experian offers one report that contains an overall score and information on your account and payment history, along with any public records. This score uses a range of one to 100. Some things considered when developing the score include recent credit usage, age of business, new credit lines opened, collection activity and payment history.
Dun & Bradstreet issues what is called a PAYDEX score. This ranges from zero to 100 and is based on your payment history. The company also issues a credit score and financial stress score, which also are used to figure the PAYDEX score. You have to actually file with the bureau to get a score, but it is a free process.
The main reason to know your credit score and understand it is to keep your business in good standing for future credit needs. If you need a loan or want to get a credit card, lenders will look for your scores to help them make a decision about whether to approve you or not. However, you can also learn a lot from your scores. For example, the Equifax business failure score can be a great indicator of trouble that you may not have even realized. If you run a big business, such as Don Gayhardt does, it can be helpful to stay on top of information that you may not be seeing come across your desk on a daily basis.
When it comes to your business credit score, things are a bit more complicated than with your personal credit score. While they both can help with securing credit lines and consider your credit history, that is really where the similarities end. Your business credit score considers many different factors about your business’ finances to come to a simple number that makes a big statement about the condition of your business and reliability as a potential borrower.