Your Business Credit Score: What It Is & Why It Matters

November 17, 2020

There are multiple factors that can influence your score, including the industry your business is in.

The cover page of a credit report

Much like individuals have personal credit scores, so do businesses. However, a business credit score is different than a personal score in small but important ways. There are multiple factors that can influence your score, including the industry your business is in.

In this article, we’ll learn about what a business credit score is and why it’s important for the expansion of your business. We’ll also take a look at what contributes to your credit score and how you can find your business’s credit score. Let’s start by learning what a business credit score is, and what makes a good score.

What Is A Business Credit Score?

For starters, a business credit score does have some similarities to a personal credit score. Both numbers fall within a certain range, and the higher the number, the better. Just like individual scores, a higher credit score translates to a lower risk level for lenders.

Your credit score can impact things like access to insurance policies and business loans. Usually, interest rates will suffer from a bad (low) credit score as well. So now that we’ve discussed what exactly it is, let’s learn about what makes a good credit score and why it’s important.

A Good Score

A good business credit score is beneficial for the growth of your company.

So what makes a good business credit score? There are specific factors we’ll look at in more depth later, but for the most part, it depends on your industry, company size, and the other standard credit factors. Unlike personal credit scores, your business score can vary depending on the model the credit bureau uses. A terrible score in one model may be a great score in another model.

Most models have a score range from 1 – 100, which is pretty easy to understand. On the other hand, there are some models that have a score range from 0-300. Then there are other models that get even more varied, with a scoring range from 101 – 662. This means a score of 90 in one model is great in one model but not too great in the 0-300 range model.

All of this is to say, it’s a bit harder to follow than the standard personal credit scores ranging from 300 – 850. For the most part, the higher a business score within the model’s scale, the better. Now let’s jump into how a good business credit score can help your business.

Why Your Credit Score Matters

Depending on the size of your business and what you do, your business credit score may not matter all that much. For example, freelancers or single-owner S-corps may not need their business’ credit scores as much as a larger business would. If you’re never looking to expand or receive a loan, you won’t need to rely on a good credit score.

If expanding your business is important to you, your business credit score should be important to you as well. It will help you should any financing needs arise. While there are different ways to finance your business, you eventually may need to look for a loan. As your business grows, you’ll also need capital for more employees. However, this isn’t the only thing to consider when considering the importance of your business’s credit.

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Challenging times could also be a reason for small business loans. Our current pandemic has brought with it many challenges to small business owners. This would be another instance in which having a good credit score could greatly help your business. Along with this, your rates insurance policies will be lower with a better credit score. Now that we know why a good business credit score matters, let’s take a look at the different factors that contribute to credit scores.

Your business credit score can help you obtain a small business loan.

Why You Need a Separate Score For Your Business

The first reason it’s good to have your business credit score separate from your personal credit is so one doesn’t influence the other as much. A person’s personal credit has more weight than business credit does. While this is great for your business’s credit if you have good personal credit, the opposite effect could happen. Meaning, you don’t want any business issues to influence your personal finances more than they have to.

A bad business venture can ruin your personal credit. Keeping your business credit score and personal credit score separate also makes it easier to keep your business taxes in order. We all appreciate anything that makes our taxes easier. Next, let’s take a look at what factors come together to calculate a company’s score.

What Contributes To Your Business’s Credit Score?

There are a few factors that contribute to a business’s overall credit score. There are different models, so the factors depend on which one is being used. The two main variables are what industry you’re in and the size of your company.

High-Risk Industries

As you’d imagine, there are industries that are considered higher risk than others. This article from explains that the higher the chance of failure (in the opinion of the lender), the higher the “risk” of the industry. Along with affecting a business’s credit, it can also make it more difficult for these industries to obtain a loan. They’ll also likely have higher interest rates.

High-risk industries can include:

The silhouette of oil pumps in front of a sunset.
  • Accounting
  • Agriculture
  • Construction
  • Insurance
  • Manufacturing
  • Newspaper
  • Oil and gas
  • Real Estate
  • Restaurants
  • Transportation
  • Travel agencies
  • Trucking
  • Utilities

Company Size

Along with the industry, the size of your company will also determine part of your risk. For example, if you’re a very small business in the newspaper industry, you’re likely considered high-risk. How long you’ve been in business may save your score. If you’ve been in business long enough, you’ve found a great niche market. If your cash flow or industry is seasonal, this will also increase your risk level to lenders.

Aside from industry and size, there are other factors that will play into your business credit score. The first factor, obviously, is a company’s payment history and amount of debt to income. They’re basically making sure you have the means to pay back the loan they’re giving you. Just like your personal credit score, how you’ve repaid past and current debts will play a role in your business’s score.

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How To Find Your Business Credit Score

Although you have the right to your personal credit score for free, this does not apply to your business’s score. You’ll have to pay a credit bureau to access any information about your company’s credit. There are many different services you can use to find your credit score and monitor your credit.

Some of the most popular services are Equifax, Dun & Bradstreet, and Experian. All of these services are good for their own reasons and range in price from $39.95 – $99.95. Depending on your needs, any of these services should work for your business. This article from Nerdwallet explains the benefits and details for each credit bureau option. If, after finding your business’s credit score, you decide it needs improvement, there are ways to help your score.

Magnets that spell out "improve" with arrows pointing to the word.

How to Improve Your Score

U.S. News recommends in their article that you start improving your score by checking for errors. You should do this first to ensure you didn’t miss anything, and also to make sure that the debt is accurate. After all, businesses are also susceptible to fraud and identity theft. If your information is outdated or incorrect, it could also be possible that your information is getting mixed up with another company. So make sure errors aren’t responsible for your credit score before moving onto the next steps.

The next step for improving your score is paying your debts on time (if you’re not already) or early if possible. If you’re forgetful, enroll for automatic payments. Some companies will also give additional perks for auto-enrollment – just another benefit of paying back your loans in a timely manner.

To make sure everything is going accordingly, you’ll need to check your score regularly. This is why it’s helpful to have one of the above-mentioned services, so you’ll get notified of any changes or irregularities. This article from Experian explains additional ways to improve your business’s credit score.

Hopefully, after following these steps, you’ll be able to improve your existing credit. Or maybe you’ll decide that your company doesn’t need to rely on a credit score. Either way, make sure you’re doing what you need to in order to best benefit your business.

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