Jan 29, 2020

Understanding Your Business Credit Score

Between the detailed reports and the scores, figuring out your credit situation can be confusing and sometimes frustrating. In addition, as a small business owner, you will likely be dealing with business credit as well. Both your personal and business credit history are important when seeking funding for your business, so you should pay consistent attention to all of these scores and try to improve your credit where you can.

Business Credit Score versus Personal Credit Score

Your personal credit is the score you develop over time, determined by your spending habits and repayment history. As a money-spending American, you almost certainly have one, even if you haven’t checked it recently. A business credit score, also known as a commercial credit score, is a number that indicates to lenders whether or not your company is a good channel to invest in or to do business with.

Personal credit scores can range from 300 to 850—most creditors require a score of at least 680 to be creditworthy, and anything above 800 is considered excellent. Business credit scores, on the other hand, can range from 0 to 100. Anything above 75 is considered an excellent rating.

Does Your Business Even Have a Credit Score?

If your small business is extremely new, you likely won’t have a business credit score yet. Your business might not even have a score if it’s been around for years and you’ve never sought outside funding.

Have you ever opened a business credit card or taken out a business loan? This will be the biggest factor as to if your company has a credit score. Business credit scores are a lot like personal credit scores in that they measure the creditworthiness of an entity, i.e., your business.

Unlike your personal credit score, though, a business credit score is public information. One major reason to keep your business’s score high is that potential lenders, vendors, customers, and even your neighbor can see it. Because of this, your business credit score has a huge impact on whether a lender offers you financing.

How to Establish Business Credit

If you don’t yet have a business credit score, there’s no need to worry. You’ll want to complete a few tasks to get your business credit established early on so that it can grow over time.

Registering your business as a legal entity will separate it from you and make it easier to establish a business credit score in addition to your personal credit score. You’ll also want to incorporate your business if you haven’t already. The most common types of business structures are limited liability corporations (LLCs), S corporations, and C corporations.

Opening a business checking account at a bank and registering for an EIN, an Employer Identification Number, with the Internal Revenue Service are critical steps toward establishing a business credit score.

Finally, apply for a business credit card. This card is a simple way to start building business credit as long as you repay it responsibly. Even if you’re not looking to take out loans now, opening a business credit card under your new EIN is a great way to start building your business’s credit score.   

How Your Business Credit Score is Calculated

There are 3 credit bureaus in the United States responsible for calculating business credit scores: Experian, Equifax, and Dun & Bradstreet. Each bureau has its own alchemy for assigning scores, but they follow a general rubric.

Your business credit score is calculated based on years in business, the number of credit line applications submitted over the past 9 months, the number of credit lines opened in the past 6 months, credit repayment history over the past year, and the number of late payments on your business’s record.

Understanding these indicators is the first step to understanding and improving your business credit.

How to Check Your Business Score

Although checking your personal credit score for free has become pretty easy now, getting ahold of your business credit report requires some effort and cash.

Checking your business credit score will show you where you can improve. You should also comb through your business credit report to check for any errors. You’ll want to check your business credit score with all 3 major credit bureaus.

Ordering your business report isn’t free, and the exact price will depend on how much information you want. Your basic business credit report will cost $39.95 from Experian, $99.99 from Equifax, and $61.99 from Dun & Bradstreet. The cost of more extensive services, like in-depth reports and monthly credit monitoring, is in the hundreds.

About the author

Barry Eitel
Barry Eitel
Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.

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