Businesses Have Credit Scores, Too. Here’s Why They Matter

More and more business owners are paying attention to something many of them haven’t considered until now: their business credit. 

According to a 2020 study by the Federal Reserve, 88% of small businesses rely on their owner’s personal credit for financing, as opposed to their business credit profile. But that’s changing, because credit markets are getting tighter in the recession caused by the pandemic and individual borrowers have a harder time obtaining loans.

Enter business credit, which is separate from the company owner’s and provides an opportunity for small businesses to keep operating as the economy contracts. Dun & Bradstreet, one of the three firms providing business credit scores, reports a significant increase in the number of businesses accessing their profiles. 

“We work with over a million small businesses across the country, and we’ve seen a massive uptick, especially since the pandemic began,” says Joe Pascaretta, general manager of credibility at Dun & Bradstreet. “It’s a massive opportunity for owners to see where they stand as a business.” 

A business credit profile doesn’t just determine creditworthiness. Business credit files and credit scores can also be used by federal and local authorities when selecting companies for government contracts, or by other companies looking for partnerships. Whether you’ve just opened your business or are an experienced business owner, now is the time to take control of your business credit score. You can understand and control what affects it. 

What is a Business Credit Score?

You’re probably familiar with how to check and monitor your personal credit. The same concept applies when you check business credit, but with a few differences.

“The key difference between a business credit score and a consumer credit score is that the numbers are going to be much different,” says Gerri Detweiler, education director for small-business credit tracker Nav. “The scale for most consumer credit scores runs from 300 to 850, with 850 being the best score you can get. With business credit scores, they vary. It depends on the bureau, and the scoring model they are using.” 

The most commonly used scores are the Dun & Bradstreet PAYDEX score and the Experian Intelliscore — each ranging from 0 to 100 — and the Equifax delinquency score, which ranges from 224 to 580.

A business credit file starts when small business owners apply for an Employer Identification Number (EIN) with the Internal Revenue Service, or establish a Data Universal Numbering System (D-U-N-S) Number with Dun & Bradstreet. 

The EIN number is to businesses what a Social Security number is to individuals: a legal identifier used for various kinds of transactions. Sole proprietors, limited liability companies and partnerships, as well as large corporations, must all have an EIN number. 

An EIN and  Dun & Bradstreet D-U-N-S Number are notthe same thing. While an EIN is a legal identifier with the IRS, which business owners use when they file taxes, the D-U-N-S Number is an identifier with Dun & Bradstreet, and is used to help companies establish their file with the credit bureaus. Businesses are not required to get a D-U-N-S Number, but, Pascaretta says, establishing one sooner can help them avoid errors on their credit report.  

Once a credit file is established, credit issuers and vendors will report transactions to the three credit bureaus. Key information that goes on business credit files includes: 

  • Business credit cards and lines of credit
  • Payment terms and history with industrial vendors (companies including Uline, Grainger, HD Supply and others)
  • Business accounts with suppliers (FedEx, UPS, and office supply stores)

How a Business Credit Score Is Calculated

Once you have established your business credit file, all three major credit bureaus can calculate your business credit score. While your personal credit score is based on how you manage your loans and credit cards, your business credit score is based on your loans, relationships with vendors, and whether you pay their bills on time. 

Just like with a personal credit score, a higher number is better. Businesses with the best credit will have a score above 80, while a lower score suggests a struggle to pay the bills. 

“When you look at the Paydex score, it’s a numerical rating,” says Pascaretta. “Businesses with a score between 80 to 100 are considered low risk, 50 to 79 is medium risk, and 0 to 49 is considered high risk.” 

Missing a payment affects that number more quickly than it would a personal credit score. A missed personal credit card payment is only reported late if it’s not paid by the next monthly cycle. But if you miss a payment to another business, your late payment is reported immediately with the note “days beyond term,” or DBT for short.  

For example: if your business has established a relationship with a supplier, on the agreement that you will pay “net 30” — or 30 days from the date of invoice — your business is expected to pay by that date. If your business pays on day 32, the supplier could report you as two DBT, which could immediately affect your business credit score. 

How quickly your business pays bills isn’t the only measure that goes into your business credit score. To build strong credit, experts recommend establishing multiple business accounts with a variety of suppliers to show that your business has liquidity, can responsibly manage money, and is being run as a legitimate business. 

Why Does a Good Business Credit Score Matter? 

A good business credit score matters for two reasons. One has to do with getting funds.  

Companies with good business credit scores are more likely to get approved for lending. Whether it’s a line of credit that allows expansion or a set of credit cards for employees, a good credit score can help business owners unlock the financing they need to grow. 

The other has to do with business-to-business relationships. When a larger company decides to partner with a small business, or a government agency considers awarding a contract, the first thing they will often do is check the prospective partner’s credit report.

“It’s one of the most important things not only lenders look at, but also suppliers, or anyone you’re trying to do business with on credit,” says Pascaretta. “A lot of corporations that want to do business with small businesses will also look at a business credit report to determine if this is a business they can trust (and) they believe will be in business for the next couple of years.” 

Does Business Credit Offer the Same Protections as Personal Credit? 

While there are a lot of similarities between managing your personal credit and your business credit, there’s also a major divide when it comes to protections and accuracy. To begin with, business credit is not regulated under the Fair Credit Reporting Act

“There’s no law that covers business credit reporting, and there’s also no industry standard,” says Detweiler. “Each of these commercial credit bureaus is out there trying to get customers to report, and they are all working with the vendors individually.” 

If there is inaccurate information on your business credit report, you will have to work with each bureau individually to make it right. If you have a D-U-N-S Number with Dun & Bradstreet, you can file updates and disputes using the company’s online management portal. But if your concerns are with Experian or Equifax, you will be forced to print out your report, circle the disputed item, write a letter explaining why the information is incorrect, and provide supporting documentation for your claim. 

Moreover, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act)  applies only to consumer credit cards, not business credit cards. If you end up paying any of your cards late, your business credit can be reported as being “days over term,” which can reduce your credit score and hurt your chances of securing financing and deals with other businesses. 

How to Check Your Company Credit

If a small business has a D-U-N-S Number, several business lines of credit, or relationships with individual vendors, it may have a credit file that is not being monitored. Experts say the best way to manage business credit is by regularly keeping updated on their reports and business credit score. 

“A lot of small businesses have no idea they have a credit profile they need to maintain,” says Pascaretta. “You want to show you have enough capital to stay in business, and can weather economic conditions like we have today. So, making sure you are monitoring that credit information is vital.” 

But under federal law, businesses are not entitled to a free copy of their business credit report every year. Furthermore, if a business is denied a line of credit or other financial product, the bank is not obligated to reveal which credit bureau it requested information from.

There are several services that can help you navigate the world of business credit. While some offer free business credit scores, regular business credit monitoring software can cost anywhere from $29.99 to more than $199 per month. 

Business Credit Resources

For businesses ready to manage and master their credit, here are four resources that can help navigate and understand a business credit report: 

Free Business Credit Resources

  • NavIn addition to offering summary credit reports and scores from the three business credit bureaus, Nav also helps business owners understand their credit picture with an Experian personal summary report and VantageScore credit score. Those seeking help building a file and finding financing options may benefit from paid subscriptions, which range from $29.99 per month to $49.99 per month. 
  • Dun & Bradstreet CreditSignalCreditSignal allows users to get a free copy of their Dun & Bradstreet business credit report and score for 14 days, giving them time to correct mistakes through the D-U-N-S portal. Companies needing more insight after the two-week window must subscribe to their CreditMonitor Product for $39 per month, or $399 per year. 

Paid Business Credit Resources

  • Experian Business Credit AdvantageFor one annual payment of $189, Business Credit Advantage offers a self-monitoring option for businesses to continually access their business credit report and score, while also being able to see who pulled their file. The downside is that it doesn’t provide insight to the other two credit bureaus. 
  • Credit Suite: Billing itself as a one-stop solution, Credit Suite helps businesses get established with the credit bureaus and potentially qualify for financing for $2,997, or seven payments of $597. In addition to getting help from a “credit concierge,” users will also have access to Experian Smart Business, giving them regular insight into their credit report. 

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