Credit Score for Business Made Simple

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Credit Score for Business Made Simple

Published By Janet Gershen-Siegel at April 4, 2018

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Does your small business have a good business credit score? Does it have a credit score for business at all?

So you are currently in business, and you are striving to keep on top of your business credit scores. Or perhaps you are not, and have decided now is a good time to start. Or maybe your business is relatively new, and this is the first time you’re doing this. Regardless of your situation, you’ve probably asked this question at least once – are my credit ratings any good?

Let’s take a look at the three business credit reporting agencies and solve this mystery once and for all.

Your Small Business’s Experian Business Credit Score

Experian’s Credit Score report includes things like a business credit score plus additional information, including account histories, payment trends, and public records. Experian company credit scores run the gamut from 1 to 100. Unlike Dun & Bradstreet’s PAYDEX score and Equifax’s payment index, Experian considers a variety of factors, and not just payment histories. The details which go into the calculation include:

  • Lines of credit your small business has applied for in the prior nine months
  • New lines of credit you’ve launched in the last six months
  • Your company’s years in business
  • Payment history in the most recent twelve months
  • Lines of credit used in the previous six months
  • Collections totals in the most recent seven years
  • Percentage of available credit being used
  • Number of payments one – 30 days late, or 31 days or more overdue
  • Number of non-net-30 lines of credit (that means the payment is due in fewer or greater than 30 days).

Usually, even businesses which use credit sensibly will get a medium-low risk rating. As might be expected, well-established businesses will have a much easier time getting a low-risk rating.

A decent Experian score for your small business is 76-100.

Your Small Business’s PAYDEX Score

Dun & Bradstreet’s PAYDEX score ranges from 0 to 100. A PAYDEX score is based on payment records which is either reported to the CRA or is reported to data-gathering businesses partnering with the CRA. D & B uses this information, in addition to a credit score and financial stress score, to advise just how much credit a creditor ought to extend to your small business.

So as to have a PAYDEX number, you are required to file for a DUNS number via Dun & Bradstreet’s site. The number is free. In addition the CRA needs to have records of your payments with four or more vendors. Your company’s PAYDEX score shows if your payments are typically made punctually or ahead of schedule. As you might expect, a greater number is better. The scores work out as follows:

80-100: A low risk of late payments.

50-79: A medium risk of late payments.

0- 49: A high risk of late payments.

Your business’s credit rating ranges from 1 to 5. 1 is the best score. This matches your business with other companies with similar payment histories. The figure shows how frequently those small businesses tend to pay in a timely manner. This data can help lenders to understand your company’s standing. However, it does not really reflect all of the payment information from your company.

The financial stress score also runs from 1 to 5. This score matches your company with other companies sharing similar financial and business characteristics. These similarities are in areas such as size or amount of time in business. This score shows how often those businesses tend to pay on time. As before, 1 is the best score. This rating is a broader investigation of the business landscape, rather than analysis of your business’s actual payment history.

A great PAYDEX score for your company is 80-100.

Your Business’s Equifax Score

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

Similar to the PAYDEX score, Equifax’s payment index, which is measured on a scale of 100, demonstrates how many of your business’s payments were made promptly. These include both information from creditors and vendors. Nevertheless, it’s not designed to forecast future activity, which is what the other two scores are for.

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

  • Available credit limit on revolving credit accounts, e. g. credit cards.
  • Your business size.
  • Evidence of any non-financial transactions (e. g. merchant invoices) which are late or were charged off for two or more billing cycles.
  • Amount of time since the oldest financial account was opened.

Finally, Equifax’s business failure score takes a look at the possibility of your small business shutting down. It ranges from 1,000 to 1,600, appraising these aspects:

– Total balance to total current credit limit average utilization in the past three months.

– The length of time since the oldest financial account was opened.

– Your small business’s worst payment status on all trades in the past 24 months.

– Proof of any non-financial transactions (e. g. merchant invoices) which are late or have been charged off for two or more billing cycles.

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

A good Equifax score for your company is as follows:

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

Keep your numbers up and good things will happen.

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