Ultimate Guide to Improving Your Business Credit Score

Types of Business Credit Scores and How They Are Calculated

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Understanding the various types of business credit scores and their calculation methods is crucial for any small business owner aiming to improve their financial standing. Unlike personal credit scores, which are relatively standardized, business credit scores come in several flavors, each with its own unique formula and scale. This diversity can seem daunting at first, but grasping the basics of each major score type will empower you to take control of your business’s credit health. In this section, we’ll break down the four primary business credit scores: the Dun & Bradstreet PAYDEX Score, Experian Intelliscore Plus, Equifax Business Credit Risk Score, and the FICO SBSS (Small Business Scoring Service). We’ll explore how each is calculated and what factors carry the most weight, providing you with the knowledge to strategically boost your scores across the board.

Dun & Bradstreet PAYDEX Score

The Dun & Bradstreet PAYDEX Score is a widely recognized metric in the business world, serving as a key indicator of a company’s payment performance. This score ranges from 1 to 100, with higher numbers reflecting better payment practices. Unlike some other credit scoring systems, the PAYDEX Score focuses exclusively on how promptly a business pays its bills.

Calculation of the PAYDEX Score is based on payment experiences reported to Dun & Bradstreet by various vendors and suppliers. The score is dollar-weighted, meaning that larger transactions have a more significant impact on the overall score. This weighting system ensures that the score accurately reflects the business’s ability to handle its most substantial financial obligations.

The timeliness of payments plays a crucial role in determining the PAYDEX Score. Payments made earlier than the agreed-upon terms can positively influence the score, while late payments have a negative impact. For instance, consistently paying 30 days before the due date can result in a perfect score of 100, while payments made on the exact due date typically yield a score of 80.

It’s important to note that to generate a PAYDEX Score, Dun & Bradstreet requires a minimum of four trade experiences reported by at least two vendors. This requirement underscores the importance of establishing and maintaining relationships with multiple suppliers who report to D&B.

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Key Takeaways

The PAYDEX Score ranges from 1 to 100, with higher scores indicating better payment performance.
It is calculated based on reported payment experiences from vendors and suppliers.
The score is dollar-weighted, giving more importance to larger transactions.
Early payments can significantly boost the score, while late payments lower it.
A minimum of four trade experiences from at least two vendors is required to generate a score.

Tips

Prioritize timely payments to all vendors, especially those reporting to Dun & Bradstreet.
Consider paying bills before their due dates to potentially achieve a higher score.
Establish relationships with multiple suppliers who report to D&B to ensure sufficient data for score calculation.
Regularly monitor your PAYDEX Score to track improvements and address any issues promptly.
Communicate with vendors about their reporting practices to ensure your positive payment history is reflected in your score.

Experian Intelliscore Plus

The Experian Intelliscore Plus is a comprehensive business credit score that provides valuable insights into a company’s creditworthiness. This score ranges from 1 to 100, with higher scores indicating lower risk. Experian uses a sophisticated algorithm to calculate this score, taking into account over 800 variables from multiple data sources.

Experian’s model considers a wide array of factors when calculating the Intelliscore Plus. These include payment history, credit utilization, company size, industry risk factors, and public records such as liens or judgments. The score also incorporates data from suppliers and vendors, giving a more holistic view of a business’s financial health.

One unique aspect of the Intelliscore Plus is its blended approach. It not only looks at the business’s credit history but also considers the personal credit information of the business owner. This can be particularly relevant for small businesses or startups where the line between personal and business finances may be less distinct.

The Intelliscore Plus is designed to predict the likelihood of a business experiencing severe delinquency or bankruptcy within the next 12 months. This makes it a valuable tool for lenders, suppliers, and other entities assessing the risk of doing business with a company.

Experian updates this score frequently, often on a monthly basis, ensuring that it reflects the most current information available. This regular updating allows for a more accurate and timely assessment of a business’s credit risk.

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Key Takeaways

Experian Intelliscore Plus ranges from 1 to 100, with higher scores indicating lower risk.
The score is calculated using over 800 variables from multiple data sources.
It considers both business and personal credit information.
The score predicts the likelihood of severe delinquency or bankruptcy within 12 months.
Experian updates the score frequently, often monthly.

Tips

Regularly review your Experian business credit report to understand the factors influencing your score.
Maintain a strong payment history with suppliers and creditors to positively impact your score.
Keep your business credit utilization low, ideally below 30% of your available credit.
Address any negative items on your report promptly, such as liens or judgments.
As a business owner, maintain good personal credit as it can influence your Intelliscore Plus.

Equifax Business Credit Risk Score

The Equifax Business Credit Risk Score is a crucial metric in assessing the creditworthiness of a business. This score, ranging from 101 to 992, provides lenders with valuable insights into the likelihood of a business meeting its credit obligations. A higher score indicates lower risk, making it more attractive to potential creditors.

Equifax calculates this score using a proprietary algorithm that considers various factors from a business’s credit history. These factors typically include:

Payment history: This is perhaps the most significant component, reflecting how consistently a business pays its bills on time.
Credit utilization: The amount of available credit a business is using compared to its credit limits.
Length of credit history: The duration for which the business has maintained credit accounts.
Types of credit: The mix of different credit accounts, such as revolving credit lines, installment loans, and trade credit.
Recent credit inquiries: The number of times the business’s credit has been checked, which could indicate attempts to obtain new credit.
Public records: Any liens, judgments, or bankruptcies associated with the business.
Company size and industry risk: Equifax considers the business’s size and the general credit risk associated with its industry.

Equifax updates this score regularly, often monthly, as new information becomes available. This frequent updating allows the score to reflect recent changes in a business’s credit behavior accurately.

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Key Takeaways

The Equifax Business Credit Risk Score ranges from 101 to 992.
A higher score indicates lower credit risk.
The score is calculated using multiple factors from a business’s credit history.
Regular updates ensure the score reflects recent credit behavior.

Tips

Monitor your Equifax Business Credit Risk Score regularly.
Focus on consistent, on-time payments to improve your score.
Maintain a low credit utilization ratio across all your business credit accounts.
Build a diverse credit mix over time to demonstrate credit management skills.
Be cautious about applying for new credit, as multiple inquiries can temporarily lower your score.

FICO SBSS (Small Business Scoring Service)

The FICO SBSS (Small Business Scoring Service) is a sophisticated credit scoring model specifically designed for small businesses. It’s widely used by lenders, particularly for SBA loans, to assess the creditworthiness of small business loan applicants. Unlike other business credit scores, the FICO SBSS takes into account both personal and business credit data, providing a comprehensive view of a business’s financial health.

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 favorable, though some may require higher scores for certain loan products.

Calculation of the FICO SBSS score involves a complex algorithm that considers multiple factors:

Personal credit history of business owners
Business credit history
Company financials
Industry risk factors
Age of the business
Number of employees

One unique aspect of the FICO SBSS is its blended approach. It can pull data from multiple business credit bureaus (such as Dun & Bradstreet, Experian, and Equifax) as well as personal credit reports from the major consumer credit bureaus. This multi-source approach allows for a more holistic assessment of a business’s creditworthiness.

The exact weighting of these factors in the FICO SBSS calculation is not publicly disclosed, as it’s considered proprietary information. However, it’s known that the model is highly predictive of small business loan performance, which is why it’s favored by many lenders, including the Small Business Administration (SBA) for its 7(a) loan program.

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Key Takeaways

FICO SBSS is a comprehensive credit scoring model for small businesses
Scores range from 0 to 300, with 160+ generally considered favorable
It considers both personal and business credit data
The score is widely used by lenders, especially for SBA loans
The calculation involves multiple factors including credit history, financials, and industry risk

Tips

Monitor both your personal and business credit regularly
Maintain strong financial records for your business
Pay all bills on time to improve both personal and business credit scores
Keep your business credit utilization low
Consider working with a financial advisor to improve your overall financial health
Be prepared to provide detailed business information when applying for loans
Understand that improving your FICO SBSS score may take time and consistent effort

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