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Where’s the Research? How Does a Business Credit Score Work?

Published By Janet Gershen-Siegel at October 27th, 2018

You Asked an Epic Question, and We Answered: How Does a Business Credit Score Work, Anyway?

So, how does a business credit score work? You are currently in business, and you are working hard to keep on top of your small business credit scores. Or perhaps you are not, and have determined now is a good time to start. Or perhaps your company is relatively new, and this is the very first time you’re doing this.

No matter what your scenario, you’ve most likely asked this question at least once – are my scores any good?

Let’s have a look at the three company credit reporting agencies and solve this mystery at long last.

How Does a Business Credit Score Work? How you can Effortlessly Pull and Inspect your Company Credit Reports

Your best bet as a small business owner is to stay on top of your business credit reports from PAYDEX, Equifax, and Experian.

There are three big credit reporting agencies for businesses and you really should evaluate all three of them frequently. This is because they use slightly different criteria. Hence moving the needle for one can move the needle for both of the others. Bet perhaps not as much.

Do not permit your business credit scores to slide, as you have to pounce on any mistakes as quickly as you can. And also, you need to determine anything which is pulling your scores downward. And after that, you can take corrective measures.

You can get your reports easily and stay right on top of all three scores by following a few straightforward steps.

How Does a Business Credit Score Work? Your Business’s Experian Company Credit Score

Experian’s Credit Score report includes a business credit score as well as additional information, such as account histories, payment trends, and public records. Experian business credit scores range from 1 to 100.

In contrast to Dun & Bradstreet’s PAYDEX score and Equifax’s payment index, Experian considers a number of factors, and not only payment histories.

Experian Scoring Factors

The variables which go into the calculation include:

    • Lines of credit your company has an application for in the last nine months
    • New lines of credit you’ve begun in the past six months
    • Your business’s years in business

<li “>Payment history in the last twelve months

More Experian Scoring Factors

  • Lines of credit in use in the previous six months
  • Collections amounts within the prior seven years
  • Percent of available credit in use
  • Amount of payments one – 30 days overdue, or 31 days or more late
  • Number of non-net-30 lines of credit (that means the payment is due in fewer or greater than 30 days).

Normally, even companies that use credit conscientiously will get a medium-low risk rating. As you might expect, older companies will have an easier time attaining a low-risk rating.

A terrific Experian score for your business is 76-100.

Pulling Your Reports: Experian

Experian, another big credit reporting firm, also offers a method for obtaining reports sent to you for a charge. Hence you can keep an eye on your Experian business credit score here and the setup is simple.

On the other hand, if you would rather not get regular reports (and purchase them), then you can order a distinct Experian report for your small business on their site.

In addition, if there are any complications or issues, you can contest any mistakes on your small business’s Experian report if you follow the instructions on their site. Learn more about assessing your Experian report by evaluating a sampling Experian business credit report.

How Does a Business Credit Score Work? Your Company’s PAYDEX Score (Dun & Bradstreet)

Dun & Bradstreet’s PAYDEX score ranges from 0 to 100. A PAYDEX score is based on payment information which is either reported to the CRA or is reported to data-gathering firms partnering with the credit reporting agency.

D & B uses this data, as well as a credit score and financial stress score. So this is in order to advise how much credit a credit issuer should extend to your company.

Your Company’s PAYDEX Score

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

D & B uses this information, alongside a credit score and financial stress score, to advise the amount of credit a lender should extend to your small business.

Getting a PAYDEX Score

In order to have a PAYDEX number, you must file for a DUNS number via Dun & Bradstreet’s website. The number is free. In addition the bureau must have records of your payments with four or more merchants.

Your business’s PAYDEX score reveals if your payments are commonly made on schedule or ahead of schedule. As you might 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
  • 49: A high risk of late payments

Business Credit Score

Your small business’s credit score ranges from 1 to 5. 1 is the very best score. This matches your small business with other companies with similar payment histories. The score shows how often those small businesses tend to pay promptly.

This data can help credit issuers to recognize your business’s standing.

But it does not genuinely show all of the payment records from your company.

Financial Stress Score

The financial stress score also ranges from 1 to 5. This score matches your business with other small businesses sharing similar financial and business properties.

These similarities are in areas like size or amount of time in business. This score shows how often those companies tend to pay on time. As before, 1 is the best score. This rating is a broader look at the business landscape, rather than analysis of your small business’s authentic payment history.

An epic PAYDEX score for your small business is 80-100.

Pulling Your Reports: D&B (PAYDEX)

Dun & Bradstreet’s PAYDEX score of your business can end up being one of the leading reasons why your business obtains credit in any manner. D & B furnishes Credit Signal, which is a method to track your credit score by having the reports come immediately to you, for a fee.

You may find the price is well worth it to avoid the problems that can spring from letting this score slip. And you will not need to create and manage the schedules and reminders you might need to keep up with if you do not utilize it.

Alternatives to Credit Signal

Don’t wish to make use of Credit Signal? Not a problem, as you can receive your PAYDEX report by way of D & B and, if necessary, you can consult with their Customer Service department (this department exists as a section of Dun & Bradstreet itself).

Additionally, in order to review your PAYDEX report, check out what D & B provides, which is a sample report and even some higher level recommendations in exactly how to interpret it.

How Does a Business Credit Score Work? Your Business’s Equifax Score

Your Business’s Equifax Score

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

Equifax Payment Index

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

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

Equifax Credit Risk Score

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

    <li “>Available credit limit on revolving credit accounts, e. g. credit cards

  • Your company size
  • Proof 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

Equifax Business Failure Score

Finally, Equifax’s business failure score looks at the chance of your small business closing. It ranges from 1,000 to 1,600, assessing these elements:

  • Total balance to total current credit limit average utilization in the last three months
  • How much time since the opening of the oldest financial account
  • Your small business’s worst payment status on all trades in the prior 24 months.
  • Confirmation of any non-financial transactions (e. g. vendor invoices) which are late 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 epic Equifax score for your business is as follows:

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

Pulling Your Reports: Equifax

Equifax, one of the big credit reporting agencies, furnishes a risk monitoring service which is more convenient as it allows for reports to come directly to you. If you don’t want to purchase ongoing reports, you can as an alternative request your business’s Equifax report.

Furthermore, if you need to challenge your small business’s Equifax report, you can do so by following the information on their web site.

You can learn to read through your Equifax report by taking a look at a sample of their reports.

How Does a Business Credit Score Work?  Takeaways

Often, it is a good idea to hand over a few bucks so as to be sure you get your small business credit reports consistently. It’s a lot more convenient than to have to always remember to do this. And you’ll probably check out these reports more thoroughly, as they come at a cost.

Keep on target and use the tools that these credit reporting firms provide, and make your life less complex. After all; you’ve already got enough on your plate.

A result of the recent data breach, there are even more reasons to go over your small business and consumer credit reports, and be vigilant about any problems you find.

Keep your scores up and good things will happen. Learn more here and get started toward building business credit attached to your company’s EIN and not your SSN. And you’ll be able to answer the question: how does a business credit score work?

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