Business Credit Score: What It Is, How It Works, and How to Improve It (2024)

What Is a Business Credit Score?

A business credit score, also called a commercial creditscore, is a number that indicates whether a company is a good candidate to receive a loan or become a business customer. Credit scoring firms calculate business credit scores based on a variety of factors, including credit history, size and age, and legal woes.

Key Takeaways

A company's business credit score is a number that reveals whether it is a good candidate for loans or to be a business customer. It is calculated by three business credit scoring firms.
Business credit scores range from 0 to 100 and are based on credit information (bill paying habits and more); public records of liens, bankruptcies, and the like; and demographic information about a company.
It's possible to improve your business credit score by paying company bills on time, maintaining a healthy credit utilization ratio, and working with entities that report trades and payments to the credit bureaus.
Negative information can remain on your business credit report and affect your score for anywhere from three years, for example, for negative trade data, to nine years and nine months for a bankruptcy.

How a Business Credit Score Works

If a company wants to take out a loan to purchase equipment, one factor thelender considers is the business’ credit score. The lender also looks at the business’ revenue, profits, assets andliabilities, and thecollateral valueof the equipment the company plans to purchase with the loan proceeds. In the case of a small business, the lender might check both the business’ and owner’s credit scores, since the personal and business finances of small business owners are often closely intertwined.

The three major businesscredit scoringfirms are Equifax, Experian, and and each uses a slightly different scoring method. Unlike consumer credit scores that follow a standard scoring algorithm and range from 300 to 850, business credit scores range from 0 to 100. The higher the score, the lower the risk. Experian calls scores above 75 “excellent.” Generally, a business will be seen to havegood creditif it pays its bills on time, stays out of legal trouble, and doesn’t incur too much debt.

How a Business Credit Score Is Calculated

Experian lists three main areas of interest in the calculation of business credit scores.

Credit: This is a company’s credit obligation information derived from its suppliers and lenders. It includes a business’ number of trade experiences, unpaid balances, repayment history, credit utilization ratio, and trends over time.
Public records: This is compiled from legal filings in local, county, and state courts and includes any liens, bankruptcies, or judgments, with information on how recent they are, how often they have occurred, and their dollar amounts.
Demographic information: This refers to a company’s background information, including its size, years on file, and Standard Industrial Classification (SIC) code, which is assigned by the U.S. government. The data comes from many sources, including state filing offices, public records, credit card companies, collection agencies, corporate financial information, and marketing databases.

All of the above information is used in combination with other data, including “actual trade payment experiences submitted by payees, [other] public record information, collections information, and company background and comparative data that places a company’s payment performance in context within its industry,” according to Experian. Ultimately, your score is arrived at using “a statistically derived algorithm [that is] designed to determine risk.”

How to Use a Business Credit Score

What if Company A is considering taking on Company B as a client and wants to know the likelihood that Company B will pay its invoices in full and on time? No business wants to do hours and hours of work for a client only to receive no payment. Company A can check Company B’s business credit score first, then agree to do business only if Company B’s credit score shows that it has a strong history of paying its suppliers. Company A can even purchase a subscription service to monitor Company B’s credit score on an ongoing basis. If the score drops significantly, Company A can lower its risk by discontinuing its business with Company B or requiring payment in advance.

Similarly, Company C, a wholesale supplier, might want to check the business credit score of Company D, a manufacturer, before shipping out a truckload of goods with aninvoicegranting Company D 30 days to pay. If Company D has a high credit score, this arrangement would seem to have low risk, but if it has a low credit score, Company C may want to ask for payment up front before shipping any goods.

How to Improve Your Business Credit Score

There is no guaranteed method of improving your business credit score, but there are certain practices you can follow that are likely to bolster it.

Check your business credit report regularly: It’s important that the information in your report be true and timely.
Pay your bills on time: Your payment history is a vital part of calculating your score.
Maintain a healthy credit utilization ratio: This is the amount of your total credit that you are using expressed as a percentage. Anything above 30% is too high; 20% is probably a better goal.
Do business with entities that report trades and payments to credit bureaus: Not all business creditors or vendors report their trade information or payments. Make it a point to try to work with those that do.

How Long Does Negative Data Stay on My Business Credit Report?

As long as negative data remains on your business credit report, your credit score will be affected by it. Experian says that it “uses standard industry and government guidelines for keeping data on file," and lists these guidelines as:

Trade data	3 years
Bankruptcies	Nine years and nine months
Judgments	Six years and nine months
Tax liens	Six years and nine months
Uniform commercial code filings	Five years
Collections	Six years and nine months
Bank, government, and leasing data	Three years

What Is a Business Credit Score?

A business credit score is determined by a credit bureau for the purpose of assessing the health of a business. A good score is useful in getting loans and acquiring customers—or becoming one.

Why Do I Need a Business Credit Score?

Many small-business owners use personal credit in the transaction of their business. However, this puts you personally at risk should your business be endangered or fail. Establishing business credit alleviates this problem. Also, creditors don’t like to use personal credit to assess the health of a business, as it isn’t considered a good indicator of how the business will perform over time.

What Is an Acceptable Business Credit Score?

Business credit scores can range from 0 to 100. Ironically, the higher your score, the less risky your business is.

Experian’s Intelliscore has five risk categories: one to 10 is “high risk,” 11 to 25 is “medium to high risk,” 26 to 50 is “medium risk,” 51 to 75 is “low to medium risk,” and 76 to 100 is “low risk.”

Dun & Bradstreet’s Paydex score has three risk categories: 0 to 49 is “high risk,” 50 to 79 is “moderate risk,” and 80 to 100 is “low risk.”

Equifax’s Payment Index score has six categories defined by how long a company’s bills are overdue: one to 19 is 120+ days past due, 20 to 39 is 91 to 120 days past due, 40 to 59 is 61 to 90 days past due, 60 to 79 is 31 to 60 days past due, 80 to 89 is one to 30 days past due, and 90 to 100 is “paid as agreed.”

Do I Have a Business Credit Score if My Business Is New?

No, because you haven’t yet built a credit history, there is nothing on which to base a score. According to Experian, there are four basic steps to make sure that your creditors and suppliers will report information to the credit bureaus.

Incorporate or form a limited liability company (LLC) to ensure your company is seen as a separate business entity.
Obtain a federal employer identification number (EIN).
Open business bank accounts in your legal business name.
Set up a dedicated business phone line in your business’ name and make sure it’s listed.

Once you’ve accomplished all four steps, you can set up credit in your business’ name. Your business activity can then be reported, allowing you to establish a credit history.

The Bottom Line

Your business credit score is a professionally accredited measure assessed by the three main credit bureaus of how healthy (or unhealthy) your business is. It’s important because a poor score will affect your ability to get loans and conduct business successfully. Ranging from zero to 100, the higher the score, the lower your business’ risk. You should always keep a sharp eye on it and your business credit report to make sure they are accurate, fair, and not in danger of becoming an impediment to your business’ future.