Published By Janet Gershen-Siegel at April 13, 2018
As your small business grows and prospers, your business credit scores from Experian, Equifax, and Dun & Bradstreet (your company’s PAYDEX score) all become more important, particularly as they factor into your FICO score. Here are five things you should know about your business credit scores.
Shocked? You shouldn’t be. Just like any other calculation, sometimes your credit score is just plain incorrect. Hence you need to stay on top of it, and check what’s going into it. If any charges are listed incorrectly (usually as unpaid or as delinquent), then you can dispute these issues with the applicable credit reporting agency. Disputes need to be in writing and should be specific as to which charge you are calling into question. You will need documentation as well, so enclose a copy of any sort of proof of payment, such as a receipt or a cancelled check. Retain the originals and only send copies.
You can get your business’s PAYDEX report here and you can contact their Customer Service department (it’s a part of Dun & Bradstreet, as they also generate PAYDEX reports) here. D & B’s PAYDEX Customer Service phone number is here.
For newer businesses, or for single proprietor companies, the line between personal and business credit can sometimes be a bit blurry. Therefore, as with your business credit, you need to be on top of your personal credit reports as well.
Late payments can haunt your business credit score for a long time — seven years! Paying your business (and personal) debts off, as quickly as possible and as completely as possible, makes a very real difference when it comes to your scores. Your history will really come out in your FICO score.
Your FICO business credit score is one of the most important pieces of information about you. A good 90% of all top lenders use it to determine if you can pay off a loan. The FICO SBSS (Small Business Scoring Service) Score is generated when you apply for a loan. A lender sends your company’s documents and information to FICO, and then FICO collects more data from the business credit reporting agencies (Dun & Bradstreet, Equifax, and Experian).
Your FICO score comes from a combination of five separate factors:
1. Payment history counts for 35% of your score
2. Amounts owed makes up 30% of your score
3. Length of your credit history accounts for 15% of your score
4. New credit contributes to 10% of your score
5. Your credit mix accounts for 10% of your score
Hence your payment history is high on the list of what goes into FICO. Keep your payments on time and you’ll reap rewards for your punctuality.
Given the FICO breakdown, one issue you should be noticing is that length of credit history and new credit (these are newly-added cards and the like) together make up a quarter of that score. However, when your business is brand-new, you have issues in both areas. After all, a new business cannot help but to have new credit, by definition.
As a result, patience is a virtue for credit scores. Lower scores, particularly if you are diligent with paying off your debts, can rise with time.
Credit utilization rate is just the amount you have put on credit divided by your total available credit. If you have $1 million in available credit, and you have borrowed half of that, then your credit utilization rate is 50%. Lenders generally do not want to see a credit utilization rate of over 30%. Therefore, once again, your payment history comes into play, because the easiest way to keep your credit utilization rate down is to pay down your debts and not borrow more until your utilization rate is back down again.
So stay on top of your business credit, and don’t let it slide. Check out how this will help your company thrive.