What is a Business Credit Score and Why is it Important?
Financing is critical for small businesses. Because financing is often a necessary path to growth, few things are as important to small businesses than their credit score. Yet 36% of small businesses were denied some of the funding they requested because of their credit score.1
A good business credit score does more than just determine whether you’ll receive financing from a lender or creditor. It also determines how much money you can access and the terms of your loan or credit, including your interest rate. Your business credit score can also influence insurance and commercial rental rates.
It pays to understand what a small business credit score is, why it's important to your business, and how to improve it.
What is a business credit score?
A business credit score numerically represents an organization’s creditworthiness based on its financial history. A third-party credit bureau calculates this score and lenders use it to make decisions about offering loans and other credit to businesses. While it’s ultimate purpose is similar to a personal credit score, it works differently.
For starters, a business credit score doesn’t use a Social Security number for identification. Instead, it links to a business with an employer identification number (EIN) or tax ID number. The agencies that report business credit scores include Dun & Bradstreet, Equifax and Experian.
How are business credit scores calculated?
Businesses don’t have one credit score — they have several. Each of the three major bureaus calculates and issues unique business credit scores based on their own criteria and algorithms. The basic score for all three is 0 – 100. These scores reflect a business’s payment history and sometimes other factors as determined by each bureau. Examples may include:
How long you’ve been in business.
How many lines of credit you currently have or recently applied for.
The age of your accounts.
Risk of failure within your industry.
Equifax and Dun & Bradstreet issue multiple scores. For example, Dun & Bradstreet also issues Delinquency Scores between 101 and 670, which measure a business’s likelihood of defaulting on payments.2 It also issues Failure Scores from 1,001 to 1,875, which predict the likelihood that a business will close without paying its debts.
Most of the information used to calculate your score comes from financial data about your business, like your payment history and credit utilization information from payees. Other sources can include public records and collections companies.
As with personal credit scores, you may want to review your business credit report regularly to monitor for errors and understand your financial standing. Each of the major credit bureaus has a different approach for accessing your business credit score:
Dun & Bradstreet: Requires businesses to apply for a free Dun & Bradstreet D‑U‑N‑S® Number to establish their score.3 You can then sign up for free reports on changes to your credit file or pay for different levels of access to your scores and file data.
Experian: Offers both one-time access to your score for a fee and monthly or annual subscriptions to continually monitor it.4
Equifax: Allows you to pay a one-time fee to see your business credit score.5 You'll need to contact a representative to purchase your score.
A strong business credit score is critical to business growth and success.
Like personal credit scores, a strong business credit score is essential to obtaining certain approvals, such as loans and leases. This score also represents your business, so it affects your credibility with potential partners and your relationships and opportunities. Ways a business credit score can affect your organization include:
Improves access to financing.
Lenders use a credit score to determine the risk associated with approving your organization for financing. A better score means you're more likely to make on-time payments and pay off the loan. Lenders are more likely to offer you financing options with better interest rates and repayment terms if you have a high score.
Helps establish business credibility.
Lenders aren't the only ones who will check your credit score. Partners, clients and suppliers often look at business credit history before working with an organization. If you have a high score, they may hold you in higher esteem and help you build a better reputation in the industry as a dependable, trustworthy partner.
Enhances competitive advantage.
With a good reputation and access to financing, you can unlock more business opportunities. From valuable partnerships and contracts to favorable terms with vendors, the potential benefits of a good credit score can help you gain a competitive advantage over the competition.
Demonstrates financial stability.
A healthy credit score shows you have a history of fiscal responsibility, bolstered by your access to financing when needed. This quality can help attract investors, desirable partnerships and other opportunities you'll need to grow your business.
How can I improve my business credit score?
Improving your small business credit score takes time and effort. If you pay all your bills on time and in full, and pay down your debt, you're moving in the right direction. To boost your credit score you should take these additional steps.
Register your business with the right parties.
While you may not need an EIN to do business, it separates your business credit from your personal credit. Register for your EIN, along with Dun & Bradstreet's D-U-N-S® Number.
Set up credit accounts with vendors that report trades to the credit bureaus.
Not all businesses do, so check first. Then, pay them promptly and in full to build your credit score. You can build credit with business credit cards, loans or even trade lines with suppliers, which you can list as trade references on your Dun & Bradstreet account.
Use and promptly pay down business credit cards.
Using your business credit and then making on-time payments builds your score.
Watch your credit utilization ratio.
This is the amount of credit your business can access versus how much you use. Giving your credit card limit some breathing room is a smart move.
Keep your personal credit separate from your business.
Establish business credit cards and personal credit cards and keep them entirely separate. Using your business credit for business expenses builds your business credit score.
Correct any errors on your business credit reports.
Mistakes happen. You can contact any credit bureau to challenge errors that negatively affect your score.
Get your personal credit score in shape.
Small business lenders can and often do look at a business owner's personal credit score along with their business scores. While boosting your personal score won't improve your business scores, it will reflect positively on how you handle financial responsibilities.
Start building and improving your business credit today.
Your business credit score plays an important role in establishing or growing your company. It can influence lending decisions, your reputation in the industry and potential partnerships. You’ll better position yourself for success with a solid business score.
Our banking professionals can assist with your business financial needs. If you’d like to learn more call 1-888-SYNOVUS (1-888-796-6887) or visit one of our local branches.
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Fundera, “Small Business Lending Statistics and Trends,” January 23, 2023
Dun & Bradstreet, “Changes to Dun & Bradstreet Business Credit Scores and Ratings”
Dun & Bradstreet, “Manage My Business Credit File”
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