Everyone knows that you need a good personal credit score to obtain credit and secure desirable terms and interest rates. But what about in the business world? Is having good business credit really that important and how is it even measured?

In this article, we will dive into the nuances of business credit scores, helping you understand the key details and determiners, including score ranges, the benefits of a good score, and actionable strategies designed to help you improve your business score. We’ll also look at the global agencies involved in measuring credit worthiness and the types of credit scores they provide.  

What Is a Business Credit Score?

Though similar in concept to a personal credit score, business credit scores utilize distinct scoring models and criteria. Calculated by a third-party credit bureau, a business credit score is a numerical representation of a business’s creditworthiness based on several factors from its financial history. Lenders, creditors, suppliers, and insurance companies look at business credit scores to make decisions about whether to do business with your company.

Key factors that influence a business’s credit score include:

• Payment history
• Credit utilization rates
• Business size
• Length of credit history
• Number of trade references
• Outstanding account balances
• Public records related to liens, judgments, or bankruptcy filings

Business credit scores use a narrower scale than personal credit scores, with most agencies operating on a system that scores between 1 and 100, as compared to personal credit scores, which range up to 850. Your business credit score is also publicly available, as compared to a personal credit score, which is private.

What Is Considered a Good Business Credit Score?

As mentioned earlier, there are multiple credit bureaus that produce business credit scores. Each has their own specific business credit score range supported by unique criteria and algorithms.  Industry information and intended use can dictate which bureau is appropriate. Let’s look at the question of what constitutes a good business credit score through the lens of three of the agencies most commonly used.

Dun & Bradstreet

Often referred to as “D&B,” Dun & Bradstreet has over 70 million businesses registered in their database and is considered the premier business credit scoring agency. They assign businesses a score based on a 0-100 range, with 80+ considered good. In order to obtain a D&B credit score, a business must first obtain a D-U-N-S number , a nine digit ID used to identify a business and check its credit profile.

There are three different D&B business credit scores :

• Delinquency Predictor Score: forecasts the likelihood that a business will make severely late payments or seek legal relief from creditors within the upcoming, year with a score ranging from 1-5. A score of “1” suggests a low probability of delinquency and a score of “5” indicates a high probability of delinquency.
• PAYDEX Score: comparable to a personal FICO credit rating, this score measures a business’s payment history to assist lenders, suppliers, landlords, and insurance companies to ascertain the risk of doing business with the company. Scores range from 1-100, with 80+ considered as minimal risk.
• Failure Score: predicts the likelihood of financial stress such as filing for bankruptcy in the upcoming year. Scores also range from 1-5 with a “1” indicating minimal risk and a “5” indicating high risk.

Experian

This multinational credit bureau is well known for both business and personal credit scoring. They also utilize a 0-100 range, with an “Intelliscore” of 76+ considered good.

Equifax

A bit of an outlier, Equifax breaks down their business credit score into three distinct parts:

• Credit Risk Score: scores range between 101-992, with the higher the better.
• Payment Index Score: scores ranging between 1-100, with 90+ signifying a history of paying bills on time.
• Failure Risk Score: scores ranging between 1,000-1,610. Information used includes commercial demographic data, credit and payment information, and legal records to assess a business’s risk of closing within the next 12 months. A lower score indicates a higher risk of failure, so a higher score here is desirable.

Now that you know what a good score looks like, let’s dig into what those numbers can mean for your business.

How Does a Good Business Credit Score Impact Your Business?

A business credit score is designed to function as a quick and reliable reference point for the health and viability of a business for a potential creditor.

Better credit scores often lead to easier loan approvals, lower interest rates, and access to more favorable terms for products like the Business Lines of Credit offered by Cogent. It can also help you secure funding to expand your operations, invest in new technology or equipment, or even expand into new facilities with a Commercial Real Estate loan.

A good credit score can also helpbuild trust, enabling you to negotiate more favorable payment terms with suppliers. Since a good credit score is crucial, let’s look at strategies that can help improve your business credit score:

• Create a History of Timely Payments: It should come as no surprise that payment history is the most heavily weighted factor for determining business credit. Consistently paying bills, loans, and credit lines on time establishes reliability and can lead to increases in your credit score.

Actionable Advice: Automate payments to ensure you never miss a due date.

• Pay Off Debt Faster and Lower Credit Utilization: Keep credit utilization below 30% to demonstrate responsible credit management. For example, a business with a $100,000 credit limit should strive to keep balances under $30,000 when possible.

Actionable Advice: Paying off loans or credit cards quickly boosts your score.

• Deal With Delinquencies and Liens: address issues with outstanding collections, delinquencies, or liens immediately. Work with your creditor to bring accounts current.

Actionable Advice: Negotiate settlements to have negative marks removed from your credit report.

• Stop Applying for Credit Unnecessarily: Avoid submitting multiple credit applications for the same purpose, as frequent inquiries lower your score.

Actionable Advice: Ask your creditor if they can use an existing credit report if applying for credit within six months to a year of the last application. Plan ahead and apply for credit strategically, when your financial health is strong. Cogent can collaborate with you to build a solid relationship in which we understand your current and potential needs so you can create a plan and timeline for funding. Contact us today to get started.

• Monitor Your Business Credit Regularly: Use services from credit bureaus like D&B, Experian, and Equifax to track your credit report. Monitor your business credit rating and the opportunities a high score can unlock.

Actionable Advice: Catch errors early and dispute inaccuracies to protect your score. Don’t assume that agencies are infallible; your credit score is your company’s reputation – monitor it consistently.

• Separate Your Credit: Separate personal and business finances to establish a distinct business credit profile.

Actionable Advice: Work with a local bank like Cogent Bank to create a customized plan that meets your company’s credit needs and plans for growth.

Are You Ready to Get Serious About Your Business Credit?

The importance of a strong business credit score is not to be underestimated. You may not currently need credit but that can change overnight. Manage your business credit score and pave the way to make it easier to secure loans, qualify for lower interest rates, negotiate better terms with vendors, and build credibility with partners. Think of it as another arrow in your quiver of business planning strategies that will be there when needed to drive your business’ success.

Don’t wait to take control of the financial future of your business. Contact Cogent Bank today to learn about business banking and credit options available for you and your business.