The Business Credit Scoring System Decoded

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The Business Credit Scoring System Decoded

Published By Janet Gershen-Siegel at August 1, 2018

The Business Credit Scoring System Decoded Credit Suite>

Written by Janet Gershen-Siegel

This is the Business Credit Scoring System, Decoded

What is the business credit scoring system all about? How can you read a report? Does your company have a good company credit score? How can you find that out?

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 determined that now is a good time to start. Or perhaps your company is fairly new, and this is the very first time you’re doing this. No matter what your conditions, you’ve probably asked this question at least once. Are my credit ratings any good?

Good question!

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 a small business credit score along with other data. So this includes account histories, payment trends, and public records. Experian company credit scores run the gamut from 1 to 100.

In contrast to Dun & Bradstreet’s PAYDEX score and Equifax’s payment index (below), Experian takes into consideration several factors. So it is not simply payment histories.

Factors in an Experian Business Credit Score

The factors that go into the calculation include:

  • Lines of credit your company is on application for in the most recent nine months
  • New lines of credit you’ve launched in the most recent six months
  • Your company’s years in business
  • Payment history in the previous twelve months
  • Lines of credit in use in the previous six months
  • Collections totals in the most recent seven years
  • Percent of available credit in use
  • Amount of payments one to 30 days overdue, or 31 days or more overdue
  • Number of non-net 30 lines of credit. That means the payment is due in fewer or more than 30 days

Generally, even small businesses that use credit conscientiously will get a medium-low risk rating. As you may very well expect, older small businesses will have an easier time getting a low risk rating. Hence if you have a startup venture, do not expect your Experian scores to be stellar. At least, not to start.

A decent Experian score for your business ranges from 76 to 100.

Monitoring Your Experian Account

At Experian, you can monitor your account at: http://www.smartbusinessreports.com/Landing/1217/.  The cost will run you about $19.99.

Get your company’s Experian report at: http://www.businesscreditfacts.com/pdp.aspx?pg=SearchForm.

Updating Your Experian Account Information

You can update any incorrect or old information on your Experian account by going here: http://www.experian.com/small-business/business-credit-information.jsp.

Disputing Errors in Your Experian Account Report

You can dispute mistakes on your or your company’s Experian report by following the instructions here: http://www.experian.com/small-business/business-credit-information.jsp.

Your Small Business’s PAYDEX Score

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

D & B uses this data, in addition to a credit score and financial stress score, in order to recommend just how much credit a creditor ought to extend to your small business.

PAYDEX Scoring Specifics

So as to generate a PAYDEX score, you will have to file for a DUNS number by using Dun & Bradstreet’s web site. But at least the number is absolutely free. Don’t let them upsell you!

In addition the agency needs to have reports of your payments with four or more vendors. Your small business’s PAYDEX score reveals if your payments are usually made promptly or ahead of schedule. As you may expect, a higher number is better. The scores work out as follows:

  • 80to 100: A low risk of late payments
  • 50 to 79: A medium risk of late payments
  • 0 to 49: A high risk of late payments

Your small business’s credit score ranges from 1 to 5. 1 is the very best score. This matches your business with other businesses with comparable payment histories. The figure demonstrates how often those companies tend to pay without delay.

This information can really help creditors to understand your business’s standing. However, it does not really show all of the payment records from your small business.

Financial Stress Score

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

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 more comprehensive evaluation of the business landscape, rather than analysis of your business’s actual payment history.

A good PAYDEX score for your small business ranges from 80 to 100.

Monitoring Your Dun & Bradstreet Account

At Dun & Bradstreet you can monitor at: https://www.dandb.com/credit-builder/. D&B’s monitoring cost ranges from $49.99 to $99.99.

Get your company’s PAYDEX report at: http://www.dnb.com/about-us/our-data.html.

Updating Your D&B Account Information

Update the information if there are mistakes or the info is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm.

Disputing Errors in Your D&B Account Report

To dispute a Dun & Bradstreet report, the company wants you to contact their Customer Service Department. So D&B’s PAYDEX Customer Service contact number is here: https://www.dandb.com/glossary/paydex/.

Your Company’s Equifax Score

Equifax shows 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. It is a measurement on a scale of 100. So it shows how many of your small business’s payments were made promptly. These include both data from creditors and also vendors. However, it is not meant to anticipate 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 that your company will become severely delinquent on payments. Scores range from 101 to 992, and they evaluate:

  • Available credit limit on revolving credit accounts, which includes credit cards
  • Your company size
  • Proof of any non-financial transactions (such as merchant invoices) which are late or on a charge off for two or more billing cycles
  • Length of time since the opening of the earliest financial account

Equifax Business Failure Score

Lastly, Equifax’s business failure score takes a look at the risk of your business shutting down. It runs from 1,000 to 1,600. And it judges these factors:

  • Total balance to total current credit limit average utilization in the past 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 last 24 months
  • Documentation of any non-financial transactions (such as merchant invoices) which are late or are on a charge off for two or more billing cycles

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

Equifax Scores

A good Equifax score for your business is as follows:

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

Monitoring Your Equifax Account

At Equifax, you can monitor your account at: http://www.equifax.com/business/business-credit-monitor-small-business. The cost will run you about $19.99.

And get your Equifax business credit report at: http://www.equifax.com/business/credit-information.

Updating Your Equifax Information

Update any older Equifax information here: http://www.equifax.com/business/small-business.

Disputing Errors in Your Equifax Account Report

You can dispute your or your company’s Equifax report by following the instructions here: http://www.equifax.com/small-business-faqs/#Dispute-FAQs.

Contesting Mistakes

Monitoring can get expensive rather quickly. But we can help you monitor business credit at Experian and D&B for only $24 per month. See: https://www.creditsuite.com/business-credit-monitoring

So what’s all this monitoring for? It’s to challenge any mistakes in your records. Errors in your credit report(s) can be taken care of. But the CRAs typically want you to dispute in a particular way.

Disputing credit report mistakes typically means you send a paper letter with duplicates of any proof of payment with it. These are documents like receipts and cancelled checks. Never send the originals. Always send copies and make sure to retain the originals.

Disputing credit report mistakes also means you precisely detail any charges you contest. Make your dispute letter as understandable as possible. Be very specific about the problems with your report. Use certified mail so that you will have proof that you sent in your dispute.

The Business Credit Scoring System: Takeaways

Always use credit sensibly! Do not borrow more than what you can pay back. Also track balances and deadlines for payments. Paying on schedule and completely will do more to increase business credit scores than pretty much anything else.

Growing business credit will always pay. Good business credit scores will help a company get loans. This is because your lending institution knows the business can pay its debts. They know the small business is authentic. The corporation’s EIN links to high scores, and lenders won’t feel the need to request a personal guarantee.

Business credit is an asset which can help your business for years to come. Keep your scores in line 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.

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