Published By Janet Gershen-Siegel at November 6, 2017
Written by Janet Gershen-Siegel
Don’t be one of them. In this blog post, learn how to check a business credit score.
You got this!
Your best bet as a business owner is to stay on top of your business credit reports. There are three big credit reporting bureaus for companies. And you should assess all three of them often. This is because they use slightly different yardsticks. So moving the needle for one can move the needle for the two, though perhaps not as much.
Do not allow your business credit scores slide. This is because you need to pounce on any mistakes as soon as you can. And locate anything pulling your scores down and then take remedial steps. You can get your reports easily and stay right on top of all three scores by following a few basic steps.
Dun & Bradstreet’s PAYDEX score of your small business can wind up being among the main reasons why your company obtains credit in any way. D&B has Credit Signal, a way to keep track of your credit score by having the reports come directly to you, for a fee.
Don’t want to use Credit Signal? No worry, as you can get your PAYDEX report through D&B and, if need be, you can consult with their Customer Service department. This department is a section of Dun & Bradstreet itself.
And to review your PAYDEX report, D&B provides a sample report and also some higher level advice in the way to decipher it.
A Dun & Bradstreet Report is generated from a database. The business services giant generates such a report to help its clients make decisions on new credit applications.
The main reason for such a report is to monitor the credit risks of merchants, suppliers, and business partners. This helps companies make informed business credit determinations and steer clear of bad debt.
Dun & Bradstreet takes several factors into account in generating such a report. These include a predictor of payment delinquency; how financially stressed a company is compared to comparable businesses; an evaluation of supplier risk; credit limit recommendation; D&B rating; and PAYDEX score. Let’s consider all these factors in turn.
D&B makes a variety of proprietary calculations to try to establish if your small business can pay its invoices.
Dun & Bradstreet uses predictive models to ascertain how likely a company is to be overdue with its payments. Predictive scoring is a method of using historical data to try to predict future outcomes. It entails identifying the risks inherent in a future decision. It does this by examining the relationship between historical information and the future event.
This represents an objective and statistically derived counterpart to subjective and intuitive assessments. Such scoring enables a business to rank and order accounts based on the probability of an event taking place, such as delinquent payments.
But Predictive Scoring only represents a statistical probability, and not a guarantee.
The Financial Stress Percentile compares a company to other businesses in the same region, industry, amount of employees, or years in business.
Financial Stress Score Norms show an average score and percentile for all firms with similar demographic characteristics. These norms can be used to benchmark where this particular business stands in relation to the norm for its peer group.
Dun & Bradstreet generates Financial Stress Scores to predict the chance of business failure over the next twelve months.
Business failure is when: you get legal relief from your creditors (normally, bankruptcy). Or you quit all of your business operations without totally paying all your creditors.
Or you willingly withdraw from your business operations and therefore you leave unpaid financial commitments. Another type of failure occurs if you enter into business reorganization or receivership. Or you could make an arrangement for the benefit of your creditors.
The score ranges from 1,001 – 1,875. A score of 1,001 is the highest odds while an amount of 1,875 shows the lowest possibility of business failure.
This is a division of the scored universe into five distinct groups, ranging from 1 – 5. A 1 represents businesses which have the lowest probability of failure, while a 5 represents firms which have the highest probability of failure.
This Class makes it so a customer can quickly segment their new and existing accounts into various risk segments. This is to identify suitable marketing or credit policies. For any businesses showed as being Discontinued at This Location; Higher Risk; or Open Bankruptcy, those records automatically get a 0 score.
A Financial Stress Score Percentile is shown as a 1-100 ranking where a 1 percentile has the highest probability of failure and a 100 percentile has the lowest probability of failure.
A financially stressed company is defined as a firm which has discontinued operations following assignment of bankruptcy; voluntarily withdrawn from business operation leaving unpaid obligations; ceased operations with loss to creditors; or is in receivership or reorganization, or has made some sort of an arrangement for the benefit of its creditors.
The Supplier Evaluation Risk Rating (SER Rating) anticipates how likely it is a company will get legal relief from its creditors or discontinue its operations without paying creditors in full over next twelve months. The SER rating comes from D&B’s Financial Stress Score. The Financial Stress Score percentile serves as the basis for the SER Rating.
Once the Financial Stress Score percentile is calculated for a company, a second set of rules are applied to figure the SER Rating. The SER Rating provides a probability of worldwide supplier failure. Local countries’ failure ratings are indicated via a Class of 1 – 9. A 1 represents businesses with the lowest probability of supplier failure. A 9 represents companies with the highest probability of supplier failure.
A D&B Credit Limit Recommendation includes two recommended dollar guidelines:
Dollar guideline amounts has a basis in a historical analysis of the credit demand of customers in the U.S. payments database who have a similar profile to the business under evaluation, with respect to employee size and industry. The guidelines do not address if a business can pay that amount or if a certain client’s total credit limit was met.
Each set of limits comes with an analysis of the risk category a business falls into. This is D&B’s assessment of how likely they are to continue to pay their obligations within agreed-upon terms. It’s also how likely they are to undergo financial stress in the next twelve months.
A D&B Rating is designed to help companies rapidly assess a business’s size and composite credit appraisal. The rating is based on information in a company’s interim or fiscal balance sheet, plus an overall evaluation of the firm’s creditworthiness.
5A – HH Rating Classifications show company size based on worth or equity as calculated by Dun & Bradstreet. The figure is important because a company’s size can be an effective indicator of credit capacity. Dun & Bradstreet assigns such ratings to businesses which have supplied a current financial statement.
This is a number, 1 through 4, and it comprises the second half of a firm’s rating. It is Dun & Bradstreet’s overall assessment of a business’s creditworthiness.
An analysis of company payments, financial information, public records, business age and other factors will generate a Composite Credit Appraisal.
When a company does not supply current financial information, they cannot get a Composite Credit Appraisal rating of better than a 2. Furthermore, the 1R and 2R Rating categories indicate company size measured as the total number of employees for the business.
These rating categories are assigned to company files which do not include a current financial statement. Employee Range (ER) Ratings apply to certain lines of business not so easy to classify under the D&B Rating system.
These kinds of businesses are assigned an Employee Range symbol based upon the number of employees and nothing more.
As a whole, when Dun & Bradstreet does not have all of the details they need, they will indicate as much in their reports. But the omission of some pieces of information does not necessarily mean a firm is a poor credit risk.
The PAYDEX Score, on the other hand, is Dun & Bradstreet’s dollar-weighted review of how your small business has paid its bills during the past year. D&B bases this score on trade experiences as reported by a variety of vendors. The D&B PAYDEX Score runs from 1 to 100. As you might assume, higher scores mean a better payment performance.
Finally, any report is only as good as the data it comes from. Dun & Bradstreet’s database contains over 250 million companies spanning the globe, which includes around 120 million active companies and about 130 million companies which are out of business but kept for historical reasons.
D&B continuously gathers data and works to improve its analyses to ensure the greatest degree of accuracy possible.
Equifax has a risk monitoring service which is more convenient. It enables reports to go straight to you. If you don’t want regular reports, you can instead request your small business’s Equifax report.
In addition, if you want to question your business’s Equifax report, you can do so by abiding by the instructions on their website. You can learn how to read through your Equifax report by exploring a specimen of their reports.
It breaks down into sections.
The initial segment shows identifying details pertaining to your company, e. g. the business name, and its address and telephone number. But it also shows data such as if your small business is incorporated, and the date you first entered into business. This segment will also feature the number of employees and your company’s annual sales. This portion will additionally display if there are any alerts.
These first sections work as a summary of the rest of the report.
The next section consists of two scores:
Next off, the report shows public records. These include bankruptcies, judgments, and liens, and show the amounts and the date the most recent one was filed. This sector also shows how these matters were satisfied, e.g. if the lien was paid off.
The next element is a pie chart showing your business’s credit usage. It graphically shows which percent of your available credit line you are using. This is your credit utilization rate.
In the summary component, the report presents the quantity of your company’s credit accounts, the date these credit accounts became active, any amounts past due, your most severe status within the last 24 calendar months (how slowly you have paid off your debts), the single greatest amount of credit extended, the median balance, and the average open balance.
All of these split into financial and nonfinancial categories. Your company’s recent activity is also here; this includes things like the number of new accounts opened or delinquent accounts, the number of inquiries, and the number of updated accounts.
This area also includes a line graph which exemplifies a trend line showing your company’s average days beyond terms by date reported (nonfinancial accounts only).
The report will point out the recent trend, and how many days your company is behind terms. This section also shows your business’s payment index and contrasts it to your company’s business sector.
This next division includes basic information on financial accounts including commercial credit cards and leases, showing status; open and closed dates; original and current credit limits; balance; overdue amount; and your company’s 24-month history.
The details subsection elaborates on the highlights portion by including information such as the payment amount and frequency, and if a debt is secured.
This next section shows balances, past due amounts, aging categories, and dates of first delinquency for the most recent 12 months.
The following section shows trade accounts and so forth, and also includes balances, aging categories, and a 24-month history.
Next are public records. This section shows more comprehensive information on judgments, liens, and bankruptcies.
The next component shows the details of what went into your business failure risk summary report.
The final piece of the report shows any DBA information and any related files, plus any other miscellany which could be in a report.
Some of the more vital pieces of information Equifax considers are credit usage, public records, and how your business handles its financial and nonfinancial accounts.
Clear financial obligations as fast as possible and do not go delinquent. Maintain your company’s credit utilization within reason. So use no more than 30% of your total available credit for best results. And steer clear of late payments.
Then you should have a good Equifax score.
Experian also provides a way to get reports sent to you for a charge. Therefore you can oversee your Experian small business credit score and the setup is easy.
But if you prefer to not get continuing reports, then order an Experian report on their site. If there are any issues, you can question any mistakes on your company’s Experian report. Just follow the directions on their site.
Learn about checking your Experian report by checking a sample Experian small business credit report.
The report divides into sections. The first has basic identifying data. So this includes business name and address. But it also includes any ownership information. This section also lists key personnel and the type of business, how long it’s been operating, number of employees, and the amount of annual sales.
Next is a section with the current days beyond terms. So those are late payments. It also has predicted days beyond terms.
This section also provides an overall trend along with data points like the lowest and highest balance for the past six months. It also includes the current balance.
With the highest amount of credit extended, the report gives an idea of the highest credit utilization rate for your company.
This portion also shows the number of payment trade lines (lines of credit) your business holds. It also has how many times any business entity has made an inquiry into your credit history.
It also includes any UCC filings. These are liens on file to support loans. The summary also contains a relative percentage of the businesses doing worse than yours. It also includes the number of bankruptcies you have. Further, it includes the number of liens and judgments.
Next is the credit summary. This shows your company’s Experian credit score. It also links to information on what goes into the score and tips on how to improve it.
The next part is the payment summary. The part includes line graphs for monthly and quarterly payment trends, and it conveniently shows where the numbers come from. The monthly payment trend is even graphed versus the industry average.
Just below are three bar charts. The first shows continuous payment trends. This is a trade line on report for over six months. The second shows newly reporting payment trends. Hence a trade line on report for the first time in the last six months. And the last shows combined payment trends.
So this is the account balance for those combination trade lines.
The next part is about how your company has done with its payments. So it breaks down into credit card and leasing accounts. It also has trade lines on file for at least six months and with updating activity in the last three months. Another part is aged trades.
So the last are accounts not updated within the last three months. This information is broken down by supplier category, with payment trends at the bottom.
Next up are inquiries into your business’s credit. There is a summary by type of institution doing the asking by inquiry month.
If your business has any collection filings, they are here. It’s by date, collection agency name, status, and amounts in dispute and collected. It also includes the closed date, if applicable.
So this summary is fairly self-explanatory.
This section shows what Experian knows about your business and its relationships with these types of institutions. It includes what and how much any credit was for, when the loan began, and any balance.
Next the report shows basic legal information. This is such as the court where a judgment is on file, the date, and how much it is for.
This information is similar to judgment filings. But it lists a filing location, rather than a court.
These just show the date; filing number; jurisdiction; name of the secured party; and activity on the filing.
Just below is the UCC filings summary, broken down by filing period and number of certain types of filings. So this includes ‘cautionary’.
Experian goes over not only the amount of credit in use. It also looks at how promptly your business pays off its debts. They also consider bankruptcies, and judgments or liens against your business, and any UCC filings.
Also, Experian looks into any tax liens against your company. A part of their score also comes from how long your company has been in business. This is also how long your company has had an Experian listing. So the longer that is, the better.
All CRAs all look at how conscientiously your small business uses credit. Do you pay your bills on time or early, and in full?
Then your score will be much better. Do you use so much credit your company can’t pay it off on time, and it goes to collections? Then your score will be worse. Judgments and liens will negatively affect your score; more responsible time in business will positively affect it.
So often it pays to hand over a few dollars. Check a business credit score and report regularly. It’s a lot easier than have to always remember to do this. And you’ll probably inspect these reports more closely, as they come at a price.
Stay on target and use the tools these credit reporting firms supply, and make your life less complicated.
Also, per a 2015 survey by Nav, “45% of small business owners don’t know they have a business credit score and 82% don’t know how to interpret their score.” Knowing how to check a business credit score puts YOU ahead of over 4/5 of all small business owners.
Due to the recent data breach, there are all the more reasons to check your business and personal credit reports. And be vigilant about any issues you catch. Discover this new way to learn how to check a business credit score.