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Do you know your business credit score? If you’re like most small business owners, you’re probably looking at the question and scratching your head. According to a 2016 survey by Manta, an online small business community, 72% of people who own small businesses are clueless about their business credit scores, and 60% don’t know where to find the numbers! Your credit score affects your ability to qualify for a loan when you need funding to fill gaps in cash flow, purchase new equipment or grow your business. If you’re in that position, it’s important to know not only what your score is right now but also how to monitor it on a regular basis. The higher your score, the less of a liability your business poses to lenders, and the more financing options you have. Here’s everything you need to know to understand, monitor and improve your score (and boost your ability to access funding).
What Affects Your Business Credit Score?
Your personal FICO score depends on five factors:- Payment history: On-time payments, missed due dates, how often you pay before bills are due and the overall reliability of your payment schedule
- Credit utilization: How many accounts you have, your total available credit and how much of this credit you’re using at any given time
- Credit history or age: The length of time you’ve been building your credit history
- Recent applications or credit inquiries: The number of times a lender or other entity has checked your credit score in the recent past
- Types of credit: How many different types of credit you’re using (also called credit mix)
- Dun & Bradstreet looks at payment data reported directly to the bureau or its partners
- Equifax examines the size of your company, your available credit limit and evidence of delinquency on non-financial transactions
- Experian collects information from suppliers, lenders, legal filings and company background along with credit history and any known liens, judgements or bankruptcies
- The risk level of your industry may further influence your score
Where and How to Check Your Business Credit Score
Business credit reporting agencies don’t use the same information or criteria to calculate your score. For this reason, you need to work a little harder to understand the numbers than you do with a personal score. Personal FICO numbers are reported on a scale ranging from 300 to 850. A score of 670 to 739 is considered good, 740 to 799 is very good and 800 or more is excellent. About 46% of people fall into the “good” or “very good” ranges. As a business owner, you have to look at several numbers from each bureau to get an idea of how your financial status appears to lenders who check your credit when you apply for a loan:- Dun & Bradstreet uses a PAYDEX score of 0 to 100; 80 or more is considered good. They also calculate a commercial credit score between 101 and 670 and a “financial stress score” of 1,001 to 1,610. This score determines how likely you are to default on debt payments. You need to request a DUNS number for this bureau to start tracking your financial status.
- Equifax also uses a payment index of 0 to 100, along with a credit risk score of 101 to 992 and a “business failure score” of 1,000 to 1,610.
- Experian uses the Intelliscore Plus model, a scale of 1 to 100 showing the approximate risk level of lending to your business. You need to score above a 76 to be in the lowest risk category.
Business Credit Tips to Improve Your Score
Although paying to get your credit score can be a bit of a bummer, it’s important to check your numbers on a regular basis. The information bureaus use to calculate business credit scores isn’t always correct, and mistakes can have a negative impact on your ratings. You want to catch and dispute these mistakes as soon as possible to clean up your report. If your report is error-free but you still want to see higher numbers, you can boost your score by:- Making payments on or before due dates
- Keeping your credit utilization above 0% (but below 30%)
- Separating business and personal finances to prevent them from affecting each other
- Utilizing trade credit to make purchases from suppliers
- Using bookkeeping software or services to maintain your budget
- Hiring a credit monitoring service to keep an eye on changes and catch reporting errors