Ultimate Guide to Business Credit Scores

Types of Business Credit Scores

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Understanding the various types of business credit scores is crucial for any small business owner looking to navigate the complex world of business finance. While personal credit scores are relatively straightforward, business credit scores come in several flavors, each with its own unique calculation method and purpose. In this section, we’ll explore the four major business credit scores: the Dun & Bradstreet PAYDEX Score, Experian Intelliscore Plus, Equifax Business Credit Risk Score, and the FICO SBSS (Small Business Scoring Service). By familiarizing yourself with these different scoring models, you’ll be better equipped to manage your business’s creditworthiness and make informed financial decisions. Let’s dive into each score type and uncover how they’re calculated, what they mean for your business, and how lenders and suppliers use them to evaluate your company’s financial health.

Dun & Bradstreet PAYDEX Score

The Dun & Bradstreet PAYDEX Score is one of the most widely recognized business credit scores in the industry. This score specifically measures how promptly a company pays its bills, providing valuable insights into a business’s payment behavior and financial reliability.

The PAYDEX Score ranges from 1 to 100, with higher scores indicating better payment performance. Here’s how it breaks down:

80-100: Excellent payment performance
50-79: Good payment performance
0-49: Poor payment performance

To calculate the PAYDEX Score, Dun & Bradstreet uses a dollar-weighted average of payment experiences reported by various vendors and suppliers. This means that larger transactions have a more significant impact on the score than smaller ones.

The score primarily focuses on how quickly a business pays its bills compared to the agreed-upon terms. For example, if a company consistently pays 30 days before the due date, it will likely have a higher PAYDEX Score than a business that pays on the exact due date or a few days late.

Dun & Bradstreet requires a minimum of four trade experiences to generate a PAYDEX Score. These trade experiences are typically reported by suppliers and vendors who have extended credit to the business.

It’s important to note that the PAYDEX Score is dynamic and can change frequently based on new payment information reported to Dun & Bradstreet. This means that recent payment behavior can quickly impact the score, for better or worse.

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Key Takeaways

The PAYDEX Score ranges from 1 to 100, with higher scores indicating better payment performance.
It’s calculated using a dollar-weighted average of reported payment experiences.
The score primarily reflects how quickly a business pays its bills compared to agreed terms.
A minimum of four trade experiences is required to generate a PAYDEX Score.
The score is dynamic and can change rapidly based on new payment information.

Tips

Negotiate favorable payment terms with suppliers when possible.
Pay bills early or on time consistently to maintain a high PAYDEX Score.
Encourage your suppliers and vendors to report positive payment experiences to Dun & Bradstreet.
Regularly monitor your PAYDEX Score to catch and address any issues promptly.
If you have a low score, focus on improving payment habits with your largest creditors first, as their reports carry more weight.

Experian Intelliscore Plus

Experian Intelliscore Plus is a sophisticated business credit scoring model that provides a comprehensive assessment of a company’s creditworthiness. This score ranges from 1 to 100, with higher scores indicating lower risk. Experian utilizes over 800 variables to calculate this score, making it one of the most detailed business credit scoring models available.

The Intelliscore Plus model incorporates both business and consumer credit data, providing a holistic view of a company’s financial health. This approach is particularly beneficial for small businesses or startups where the owner’s personal credit history may significantly impact the business’s creditworthiness.

Experian’s model places a strong emphasis on payment behavior, analyzing how a business manages its financial obligations across various types of accounts. It also considers factors such as credit utilization, the age of the business, industry risk, and public records like liens or bankruptcies.

One unique aspect of the Intelliscore Plus is its predictive nature. The score is designed to forecast the likelihood of a business experiencing severe delinquency or financial distress in the next 12 months. This forward-looking approach makes it a valuable tool for lenders and potential business partners in assessing risk.

The calculation process for Intelliscore Plus is proprietary, but Experian provides general insights into the main components:

Credit information, including payment trends and credit utilization
Public records, such as liens, judgments, and bankruptcies
Demographic data, including years in business and industry type
Company size and financial stability indicators

It’s important to note that the Intelliscore Plus is dynamic and can change frequently based on new information. Regular monitoring is crucial for businesses to stay informed about their creditworthiness.

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Key Takeaways

Experian Intelliscore Plus ranges from 1 to 100, with higher scores indicating lower risk.
The model uses over 800 variables for calculation.
It combines both business and consumer credit data.
The score predicts the likelihood of severe delinquency in the next 12 months.
Calculation factors include credit information, public records, demographics, and company size.

Tips

Monitor your Intelliscore Plus regularly to track changes and identify areas for improvement.
Focus on maintaining a positive payment history across all business accounts.
Keep your credit utilization low to positively impact your score.
Address any public records or liens promptly to minimize their impact on your score.
Understand your industry risk factors and work to mitigate them where possible.

Equifax Business Credit Risk Score

The Equifax Business Credit Risk Score is a crucial metric used to evaluate the creditworthiness of businesses. This score, ranging from 101 to 992, provides lenders and potential business partners with insights into a company’s likelihood of severe delinquency or financial distress within the next 12 months.

Equifax calculates this score using a proprietary algorithm that takes into account various factors from a business’s credit history. These factors include payment trends, credit utilization, length of credit history, and public records such as liens, judgments, or bankruptcies. The score also considers industry-specific risk factors and the overall economic environment.

One unique aspect of the Equifax Business Credit Risk Score is its incorporation of both financial and non-financial data. This comprehensive approach allows for a more nuanced assessment of a business’s credit risk. For instance, Equifax may consider factors such as the company’s size, age, and industry sector when determining the score.

Interpretation of the Equifax Business Credit Risk Score is straightforward: higher scores indicate lower risk. A score above 800 is generally considered excellent, suggesting a very low risk of severe delinquency. Scores between 600 and 800 are typically seen as good to very good, while scores below 600 may indicate higher risk and could potentially lead to less favorable credit terms or difficulty in obtaining financing.

It’s important to note that Equifax also provides a separate Business Failure Score, which predicts the likelihood of a business closing within the next 12 months. This score, used in conjunction with the Credit Risk Score, offers a more complete picture of a company’s financial health.

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Key Takeaways

The Equifax Business Credit Risk Score ranges from 101 to 992.
Higher scores indicate lower credit risk.
The score predicts the likelihood of severe delinquency within 12 months.
Both financial and non-financial data are used in the calculation.
Industry-specific factors are considered in the scoring model.

Tips

Regularly review your Equifax Business Credit Report to understand your current standing.
Focus on timely payments to vendors and creditors to improve your score.
Maintain a low credit utilization ratio on your business credit accounts.
Address any public records or negative items on your credit report promptly.
Consider the impact of your industry and company size on your score when evaluating your performance.

FICO SBSS (Small Business Scoring Service)

The FICO SBSS (Small Business Scoring Service) score is a critical metric in the world of business credit, particularly for small enterprises seeking financing. This score, developed by the Fair Isaac Corporation, is widely used by lenders to assess the creditworthiness of small businesses.

The FICO SBSS score ranges from 0 to 300, with higher scores indicating lower credit risk. Many lenders consider a score of 160 or above to be acceptable, though some may require scores of 180 or higher for certain loan products.

What sets the FICO SBSS apart is its comprehensive approach to credit evaluation. Unlike other business credit scores that focus solely on business data, the SBSS incorporates both personal and business credit information. This blended approach provides a more holistic view of a small business’s financial health and creditworthiness.

The FICO SBSS calculation takes into account various factors, including:

Business credit history
Personal credit history of business owners
Financial statements and cash flow
Time in business
Industry risk factors

One of the unique aspects of the FICO SBSS is its flexibility. Lenders can customize the score based on their specific risk tolerance and lending criteria. This adaptability makes the SBSS a popular choice among various financial institutions, including banks, credit unions, and online lenders.

The SBSS score is particularly significant for small businesses seeking Small Business Administration (SBA) loans. The SBA uses this score in its loan pre-screening process. A minimum score of 140 is typically required to pass this initial screening, though individual lenders may set higher thresholds.

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Key Takeaways

FICO SBSS scores range from 0 to 300
Scores of 160 or above are generally considered good
The SBSS incorporates both personal and business credit data
It’s widely used by lenders, including for SBA loan pre-screening
The score can be customized by lenders based on their criteria

Tips

Monitor your personal and business credit regularly
Maintain strong financial records and cash flow management
Build a solid business credit history separate from personal credit
Be aware of industry-specific risk factors that may affect your score
Consider working with a financial advisor to improve your FICO SBSS score

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