Published By Janet Gershen-Siegel at August 18, 2017
Your business needs credit, just like a person does, in order to stretch your budget and take advantage of opportunities as they arise, without having to wait for payments and profits. And, just like an individual, your business has a credit score. This score helps vendors, lenders, and suppliers decide if they want to approve your company for financing and on what terms. Generally speaking, the better your company’s credit score, the more generous the payment terms are going to be – and your score will also determine whether your business gets a loan at all.There are four distinct scoring services, so let’s take a look at them as there are some subtle differences.
A PAYDEX Score serves as Dun & Bradstreet’s dollar-weighted numerical rating of how your company has paid the bills during the 12 months. D & B bases their score on trade experiences as various vendors report them. The D&B PAYDEX Score can range from 1 to 100. Higher scores mean a better payment performance, with a 100 meaning perfect payment history.
Of the credit scoring services, D & B is the only one that focuses only on business credit. In addition, if your company does business with companies which do not report to Dun & Bradstreet, your payment history with them will not be included in your PAYDEX score.
Intelliscore also scores on a 1 to 100 scale, and it takes into account over 800 variables. For smaller businesses, Experian can show a blended rate for both the business and the business owner. This takes into account how intimately financially connected solo and small business owners often can be with their companies.
Experian offers the following specifics regarding its Intelliscore Plus score ranges:
|Score Range||Risk Class||Risk Description|
|76 – 100||1||Low|
|51 – 75||2||Low-Medium|
|26 – 50||3||Medium|
|11 – 25||4||Medium-High|
|1 – 10||5||High|
In addition, all of their data comes from third parties, in an effort to assure greater accuracy. Plus they work with what they refer to as ‘blended data’ in order to better score microbusinesses and brand-new businesses. If your company is just starting up and does not have much of a payment history at all (if any), Experian makes an effort to take that into consideration when scoring.
They say their risk score comes from statistics. It is supposed to summarize business risk by evaluating certain relevant factors such as credit activity, balance information,payment behavior, and public records such as legal filings. Their data comes from both suppliers and lenders.
According to Equifax, their risk score comes from a model whereby they rank certain risks. Equifax uses the following details in its calculations, including the length of your company’s credit history, the depth of the credit information Equifax can get, and your company’s payment delinquency history.Equifax then segments five separate scorecards together, using statistical analysis. To enhance accuracy, Equifax suggests combining their Credit Risk Score with theirEquifax Bankruptcy Navigator Index. The purpose behind the Bankruptcy Navigator Index is to help predict the likelihood of your business going bankrupt within the next 24 months. Equifax bases this particular predictive model on over 270 million separate accounts.
A portion of their data comes from the Small Business Finance Exchange.
FICO’s SBSS (Small Business Scoring Service) Score combines financial, consumer bureau, application, and business bureau data. FICO validates their SBSS models for transactions such as TermLoan, Line of Credit transactions, andCommercial Card obligationswhich total up to $1million. The idea is to evaluate how your business pays back all sorts of loans.
As with your own personal credit score, it is important to achieve and maintain a good credit score, and to quickly address any errors and omissions in these reports. Keep on top of these credit scores and enhance your business’s reputation!