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5 Business Credit Scores that Entrepreneurs Should Know About

Published By Janet Gershen-Siegel at August 9th, 2017

There are 5 business credit scores that entrepreneurs should know about. Keeping your credit scores high is vital, so be sure you don’t miss one of these.

1. Dun & Bradstreet’s PAYDEX Business Credit Scores

A PAYDEX Score from Dun & Bradstreet runs from 0 to 100. This score has a basis in payment data which is on report to the bureau. Or it is on report to data-gathering firms partnering with the CRA.

D & B uses this data, in addition to a credit score and financial stress score, so as to advise how much credit a lender should extend to your business.

Getting a PAYDEX Score

To get a PAYDEX score, you must file for a D-U-N-S number by using Dun & Bradstreet’s website. The number is free of charge. Plus the CRA will need to have reports of your payments with four or more merchants.

Your company’s PAYDEX score shows if your payments are usually made punctually or ahead of schedule. As you may expect, a higher number is better.

PAYDEX Score Details

The scores break down as follows:

  • 80 – 100: A low risk of late payments
  • 50 – 79: A medium risk of late payments
  • 0 – 49: This range shows a high risk of late payments

Business Credit Score

Your small business’s credit rating runs from 1 to 5. 1 is the best score. This matches your company with other businesses with comparable payment histories. The score demonstrates how often those companies tend to pay promptly.

This data can really help lenders to recognize your business’s standing. But it does not genuinely reflect all of the payment records from your business.

Financial Stress Score

The financial stress score also runs from 1 to 5. It matches your business with other companies sharing similar financial and business attributes.

These similarities are in areas such as size or amount of time in business. This score demonstrates how frequently those businesses tend to pay on time. As before, 1 is the best score. This rating is a more comprehensive investigation of the business landscape, versus an analysis of your business’s actual payment history.

An awesome PAYDEX score for your business is 80 – 100.

2. Experian Business Credit Scores

Experian’s scoring system is called Intelliscore Plus.

What is the Intelliscore Plus Credit Score?

The Intelliscore Plus credit score is a statistically based credit-risk evaluation. The key purpose of Intelliscore Plus is to assist businesses, investors and possible future lenders make smart judgments about who they should or should not do business with.

Business Credit Secrets Credit Suite

Like a car dealership use a consumer’s FICO score to rapidly determine just how much of a risk a potential customer may be, the Intelliscore Plus credit score can provide insight on how much of a risk a business or business owner may be.

Intelliscore Plus Credit Score Range

The Intelliscore scores range from 1 to 100. So the higher your score, the lower your risk class. The chart below details each Intelliscore Plus credit score range and its associated meaning.

Score Range/Risk Class

  • 76 – 100 Low
  • 51 – 752 Low – Medium
  • 26 –503 Medium
  • 11 – 254 High – Medium
  • 1 – 105 High

Computing an Intelliscore Plus Credit Score

In the credit world, Intelliscore Plus is deemed one of the most reliable tools in effectively forecasting risk. One of the ways Intelliscore Plus maintains this claim to fame is by recognizing the major variables that show if a company is likely to pay their financial debt.

Though there are over 800 commercial and owner variables making up an Intelliscore Plus credit score, the variables can be broken down into these essential factors:

Payment History

The bureaus call this as recency but in the real world, it’s nothing more than your current payment status. This includes the amount of times your accounts become delinquent, the number of accounts that are currently delinquent, and your overall trade balance.

Frequency

Much like payment history, frequency accounts for the amount of times your accounts have been sent to collections, the amount of liens and judgments you may have, and any bankruptcies connecting with your business or personal accounts.

Frequency can also include details relating to your payment patterns. Were you regularly slow or tardy with payment? Did you start off paying bills late, but overtime, stopped doing so? These factors will all be considered.

Monetary

This particular aspect focuses on how you use credit. For example, how much of your available credit is currently in use? Do you have a high ratio of delinquent balance in comparison with your credit limits?

If you’re about to start a business or are fairly new to this game, the list above may seem a bit overwhelming. If you haven’t started or don’t have a long history of company based transactions, how will Intelliscore Plus rate you?

Intelliscore Plus deals with these situations by using a “blended model” to establish your business credit scores. This means that they take your personal consumer credit score into consideration when determining your business’s credit score.

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3. Equifax Business Credit Scores

The Equifax Credit Risk Score comes from a model which they use to rank certain risks. Equifax uses these details in its calculations, including the depth of the credit information Experian can get, the length of your small business’s credit history, and your company’s payment delinquency history.

Equifax then segments some five separate scorecards together, by using statistical analysis. In order to improve their accuracy, Equifax suggests combining their Credit Risk Score with their proprietary Equifax Bankruptcy Navigator Index. The Bankruptcy Navigator Index helps predict the likelihood of your business going bankrupt in the next 24 months. Equifax bases its predictive model on over 270 million separate accounts.

Equifax displays three separate business determinations on its commercial credit reports. These are the Equifax payment index, your business’s credit risk score, and its business failure score.

Equifax Payment Index

Similar to the PAYDEX score, Equifax’s payment index, which has its measurement on a scale of 100, shows how many of your company’s payments were made punctually. These include both data from credit issuers and vendors.

But it’s not meant to forecast future behavior. That is what the other two scores are for.

Equifax Credit Risk Score

Equifax’s credit risk score assesses how likely it is your business will become severely delinquent on payments. Scores range from 101 to 992, and they evaluate:

  • Available credit limit on revolving credit accounts, e. g. credit cards
  • Your business size
  • Evidence of any non-financial transactions (e. g. vendor invoices) which are delinquent or were on charge off for two or more billing cycles
  • Length of time since the opening of the oldest financial account

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Equifax Business Failure Score

Lastly, Equifax’s business failure score takes a look at the risk of your small business closing. It ranges from 1,000 to 1,600, reviewing these aspects:

  • Total balance to total current credit limit average utilization in the previous three months
  • How long since the opening of the oldest financial account
  • Your business’s worst payment status on all trades in the previous 24 months.
  • Documentation of any non-financial transactions (e. g. vendor invoices) which are overdue or have been on charge off for two or more billing cycles.

Equifax Scoring Analysis

For the credit risk and the business failure scores, a rating of 0 means bankruptcy.

An awesome Equifax score for your company is as follows:

  • Payment Index 0 – 10
  • Credit Risk score 892 – 992
  • Business Failure score 1400 – 1600

4. FICO Business Credit Scores

FICO uses its SBSS (Small Business Scoring Service) Score to combine consumer bureau, financial, application, and business bureau data. FICO then validates their SBSS models for transactions such as Line of Credit transactions, Term Loans, and Commercial Card obligations which go up to $1 million. Their idea is to evaluate how your small business pays back all sorts of loans.

Business credit providers use the FICO SBSS score as a tool to decide whether they should authorize a loan to your small business at all.

The SBA employs this score as well so as to authorize or approve business loans. It has a basis in your business and consumer credit history and not just your business’s financial health.

The score factors in the evaluation of the risks inherent in your business’s credit applications. With SBSS, lenders make their determinations in a matter of hours, rather than days. Lenders are more confident in their lending judgments, and your business gets swifter decisions on your loan applications.

The SBA’s Involvement

The FICO small business score or SBSS score is the primary figure that the SBA considers while determining to approve a loan, especially when it involves the SBA’s 7( a) loans.

Computing a FICO SBSS Score

The FICO SBSS Score shows the likelihood or likelihood of you, the applicant, covering your monthly bills on time. The score runs from 0 to 300. A higher score means lower risks and typically generates more positive credit terms. The score stems from your business and personal history of credit usage along with your business’s financial data. Variables also involve your business’s age, and its years or complete time in business.

As of 2014, all SBA 7(a) loans had to go through a business credit score pre-screen, and for SBA loans, you could possibly not get an approval if you had a score less than 140. But the cutoff was usually set to 160, and in most cases, a score below 160 meant a denial. A lot of lenders will only accept scores above 160 or 180, to lend up to $1 million. But a score lower than 160 or 180 can still qualify you for a smaller loan.

The Formula for the FICO SBSS Score is as follows:

  • The last year of PAYDEX scores from Dun & Bradstreet
  • Amounts and kinds of any judgements against your company
  • The amounts and kinds of any liens against your company’s real or personal property
  • Your company’s available resources
  • Your small business’s profit
  • Plus other, less distinct financial details

If you have no record of business credit and had a modest or brief time in your business, then the possible highest FICO SBSS score you can possibly anticipate is 140.

Usage and Kinds of SBSS Model Lenders

A FICO SBSS score includes the option to opt for certain models which are market-specific for improved and better decision making. For example, one model is an agricultural leasing and lending model. Another model was made specifically for Canada. Further, the insights of the SBSS score provide support for the SBRI (Small Business Risk Insight, from Dun & Bradstreet) and the SBFE (Small Business Financial Exchange) data repositories.

Verifying the SBSS models is needed for credit lines, commercial cards, and term loans of as much as one million dollars. If you are requesting one million dollars or less from bank financing, then there are chances that your SBSS score will be under review.

The Sort of Data in the Score

The SBSS gives the credit issuers of small businesses different data blends to ensure that they can analyze your business’s credit risks. As an example, a particular issuer of credit can choose only to evaluate a principle owner’s application data, or the credit issuer can choose to include one or multiple business bureaus’ data.

Or the credit issuer can only decide to prioritize one aspect over another. This intelligent score stems from different business bureaus on an automatic basis, in any order or whatever priority the issuer of the credit prefers. Therefore, if the lender picks the score of Dun & Bradstreet’s PAYDEX as its default, the SBSS will pull that set of data.

SBSS Credit Offer Index: How It Works and Why It Is Important

The Credit Offer Index is an element of FICO SBSS Credit Score for your small business, made to help credit issuers understand your capacity. It works as the criteria against all the businesses with comparable profiles.

The SBSS Credit Offer Index consists of financial application information, business bureau records, and credit bureau data for consumer. It gives a percentile ranking of the present request against other smaller businesses of identical or similar attributes and total requested money from all those businesses.

The Updated SBSS

Reporting agencies like Equifax power the newer FICO SBSS Score model. The SBFE data may be used to anticipate charge-offs, bankruptcy, or three plus cycles overdue or delinquency over a period of two years.

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5. SBA Credit Scoring

The SBA’s tool has a basis in FICO. Their idea is to speed up their credit decisions for loan approvals. The tool uses several data sources and over one hundred combinations of business and consumer analytical models. They use a designated cutoff.

Their overall statistics on their over $60 billion portfolio demonstrate that businesses with scores at, or above the designated cut-off have very good payment history.

How Do You Improve Your Business Credit Scores?

The big question has arrived, and while there is no golden answer, these ideas can definitely help you boost your score.

Make Your Payments on Time

Your payment patterns and history are a driving force in your overall credit score. Overtime, paying your bills on time will help establish your business as one that pays their financial obligations. This will inevitably help push your score up and show other companies you are a low risk.

Keep Your Debt-to-Income Ratio in Check

The more debt you have on your plate, the more invoices you have, and the less disposable income you have. If your total debt approaches or surpasses your income level, then you’re most likely to be seen as high-risk.

Keep your debts in check and consistently pay them off to keep a healthy balance between what you make and what you owe.

Use Your Credit

Keeping your debts low remains sound advice. Still, opening and responsibly taking advantage of business credit accounts can help you expand your available credit and boost your credit score.

Maintain a Healthy Personal Credit Profile

By now, you’re aware that your own personal credit is fair game when it comes to your Intelliscore Plus score. Running a business is tough work, but don’t let your personal finances suffer. Ensure that you stay on top of your personal monthly bills, stay clear of unnecessary credit inquiries, and refrain from compromising your personal credit for business demands.

Check Your Credit Reports and Business Credit Scores

Irrespective of what your credit score is, it is crucial that you continue to be diligent and review your personal and business credit reports. This can help you find possible concerns and stay educated on your own credit profile.

When you know where to check your business credit scores, you have a far better chance of getting on top of it, and staying there.

 

 

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