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How to check your business credit

Friday, December 17, 2021
When it comes to running your business, one of the most important tools you have is utilizing your credit to get funding. Whether it’s for getting your business off the ground, taking on improvements, or scaling your business, your business credit is an essential tool you can leverage as a small business owner. But how do you check your business credit? In this article, we’ll take a look at the importance of business credit, how to check it, and how to improve your business credit. To start, we’ll talk about business credit and business credit reports.

A primer on business credit

In order to understand business credit reports, it’s important to understand business credit. As a consumer, you’re probably familiar with your personal credit score – a number between 300 and 850. This number correlates to your level of personal credibility as a borrower. The higher the number, the more creditworthy you are. Just like a good personal credit score can help you qualify for more personal credit responsibility like a car loan, mortgage, personal loan, or a personal credit card, a good business credit score can do the same for your business. A high business credit score is important to the financial health of your business. 

When it comes to running a business, a good business credit score will give you more financial flexibility and the most competitive financing options. That’s because it shows the financial trustworthiness of your business to other businesses. It shows the business’s credit information and doesn’t include any personal credit. 

A good business credit score allows you to get lines of credit, take out a business loan, get a business credit card, and can even positively affect your insurance policies. However, in contrast to personal credit scores, business credit scores are on a scale from 0 to 100. This score can vary due to the evaluation of your business from the three major business credit bureaus, Dun & Bradstreet, Equifax, and Experian. 

Because each of these agencies calculates business credit scores differently, you may see a difference in credit scores across each of these providers. While a personal credit score connects to your social security number, a business credit score connects to your business’s employer identification number (EIN).

So how do business credit reports work? Much like personal credit reports, a business credit report shows data from a variety of sources. This data can come from your business’s creditors, its vendors and suppliers, public records and court filings, and collection agencies. Each business credit reporting agency uses this information to come up with a business credit score for your company. And, unlike personal credit reports, anyone can access a business’s credit report. That means that potential lenders, business partners, and clients can view your business’s financial information and make decisions on the financial trustworthiness of your business. Now that you know more about business credit scores and business credit reports, let’s find out why business credit is so important.

Why is business credit important?

As a small business owner, you understand that relationships are vital to the success of your business. In the same way, financial relationships can make or break your business. Having a good business credit score can open up financial opportunities for your business. The main reason this is important is that more financial options means the opportunity for business growth. Leveraging the most favorable loan rates and financial products while getting the best repayment terms can help your business scale while minimizing the amount of interest you pay upon repayment. 

In addition to business loans, a favorable business credit score can help you secure a higher credit line on your business credit card, or help you negotiate terms with suppliers if you have consistent payment history. With a high business credit score, you’re proving that you’re a reliable customer or partner.

Even if you’re not currently in need of credit, it’s important to maintain a high credit score so that you’ll be able to act when an opportunity arises at your business. Next, we’ll take a look at how to check your business credit score.

Checking your business credit score

The process of checking your business credit score is easier than you think. There are three main agencies that produce business credit reports. To receive a score, check with each of these bureaus. Here’s how each credit bureau determines credit:

Dun & Bradstreet

One specific factor rules when it comes to how Dun & Bradstreet (D&B) calculate your business credit score: how timely you are when paying vendors. These vendors include business loan lenders, suppliers of raw materials, utility companies, insurance companies, leasing companies, and more. Based on this timeliness, D&B calculate your PAYDEX score from 0 to 100. This is why making payments on time is important.

To get a score with D&B, your business needs to build a business credit file through D&B. To do this, you’ll first need a D-U-N-S number, a nine-digit identifying number for your business. You can get this for free through D&B’s website.

Equifax

Equifax uses its proprietary method for calculating your business credit score as well. They collect information about your business like the other credit bureaus, and then evaluate this data. Equifax looks at the data a bit differently, focusing on payment trends, business credit history, and demographic information. A unique aspect of Equifax is that they give your business three scores in the credit report: a payment index score, credit risk score, and a business failure score.

The payment index score ranges from 1 to 100, the credit risk score ranges from 101 to 992, and the failure risk score ranges from 1000-1610. The lower the number, the higher the risk that the business will go out of business within 12 months. As you'd expect, a higher score means a low-risk, more stable business.

Experian 

Experian does things a bit differently. They collect information on your business’s obligations from lenders and suppliers, then take into account any legal filings for your business. Experian also takes into account any liens, judgments, and bankruptcies. This information is entered into an algorithm that determines your business risk. The Experian business credit report, known as Intelliscore Plus, ranges from 0-100, with the lower the score, the higher the risk.

With Experian, you’ll also get a risk classification from 1-5. In this case, you want the lowest score possible, with 1 being the least risky. For this credit bureau, a 3 is a medium risk class. The worst score is a 5, which correlates to a high risk business – one that has a high probability for payment delinquency. 

Now that you know how each of these credit bureaus works, let’s take a look at why you should check your credit report.

Why should you check your business credit report?

Checking your business credit report is an important piece of business ownership. It illustrates the financial well-being of your business and helps you protect your business. Here are some key reasons to check your business credit report:

  • Helps prevent fraud – Monitoring your business credit score regularly can help reveal fraud and identity theft. Whether it’s a new account that you don’t know, an application for credit that you didn’t make, or other inaccurate information, a business credit report is a way to catch potential fraud.
  • Monitors business health – Regular check ups on your business credit can help you know where your business stands, especially if you’re looking to apply for a business loan, business credit card, or working with a new vendor.
  • Safeguards personal assets – If your business suffers from a bad business credit score, you may need to personally guarantee a business loan. This can open your personal assets to liability if your business experiences financial difficulties and you can’t pay outstanding debts. But with a good business credit score, you’ll be able to get financing based on the business and not based on personal assets.
Now that you know why you’d want to periodically check your business credit score, let’s look at the factors that can influence your business credit score.

Factors that influence credit scores for businesses

Here are some of the biggest factors when it comes to a business credit score:

  • Time in business – Much like personal credit scores and length of credit history, for businesses it comes down to how long you’ve been in business. Generally, younger businesses have less credit history, making it harder to assess the trustworthiness of those businesses.
  • Payment history – Your business’s ability to pay debts on time makes the biggest difference in your business credit history. Late payments can lower your business credit score.
  • Credit mix – The mix of different types of credit, whether loans, credit cards, and trade credit can have an impact on your credit score. It’s important to have a diverse mix of credit at your business.
  • Credit utilization ratio – The ratio of how much credit you’re using can indicate your creditworthiness. You’ll want to keep your utilization to about 25% of your available business credit.
  • Mistakes on the credit report – Inaccuracies on your credit report can wreak havoc on your credit score. That’s why you’ll want to make sure you’re evaluating your credit in consistent intervals to catch and amend any mistakes on your business credit report.
Next, let’s take a look at how to repair and build business credit.

Repairing and building business credit

Sometimes, your business could use a boost in its business credit score. Or, perhaps you’re a new business owner who is looking to build your business credit. Either way, here are a few steps you can take to increase your business creditworthiness. 

  • Separate business finances from personal finances – If you haven’t done this already, it’s important to keep all business records and expenses separate from personal accounts. This might require you to open up a business bank account and apply for an EIN. You’ll also be able to open up a business credit card, and you’ll want to be sure you’re only using it for business purposes.
  • Have vendors report your business payment history – As a business, you’ll be working with suppliers and third-party vendors. Since payment history affects your business credit score, you’ll want to make sure suppliers and vendors are reporting your payments to the credit bureaus.
  • Use a business credit card regularly – Get into the habit of buying all of your business items with your business credit card and then pay it off each month. A business credit card can be especially useful when you have fixed recurring costs that can be put on the card and then be paid off in full.
  • Mix your credit – As you know, a variety of credit types can be helpful for your business’s credit score. So, as you look to improve or build your business credit, look to open a mixture of credit types, and make sure you pay them off appropriately.
As you’ve seen, credit is important to businesses, especially small businesses like yours. In this article, we’ve talked about the importance of building your business credit score and how to check your business credit score. With a good grasp on business credit, you can map out a plan for your business and put good credit to work.


Ready to work with a payment processor who can help your business manage its credit?

Heartland is the point of sale, payments and payroll solution of choice for entrepreneurs that need human-centered technology to sell more, keep customers coming back and spend less time in the back office. Nearly 1,000,000 businesses trust us to guide them through market changes and technology challenges, so they can stay competitive and focus on building remarkable businesses instead of managing the daily grind. Learn more at heartland.us. 

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