How Is Business Credit Score Calculated in the U.S.?
A business credit score is a crucial metric used by lenders, suppliers, and other financial entities to assess a company's creditworthiness. Understanding how this score is calculated can help business owners improve their credit position and access better financing opportunities. In this article, we will explore the key factors that influence business credit scores in the U.S.
Key Factors in Calculating Business Credit Score
Payment History
Description: Payment history is one of the most important factors in calculating a business credit score. This factor reflects the timeliness and consistency with which a company pays its debts.
Impact: Timely payments improve the score, while late or missed payments significantly harm it.
Debt Amount
Description: This factor considers the total amount of debt a company has relative to its available credit capacity.
Impact: A high level of debt can indicate financial risk, potentially lowering the credit score.
Credit Age
Description: The age of a company's credit accounts also plays a crucial role. A longer and positive credit history is favorable.
Impact: Companies with a longer, trouble-free credit history generally have higher scores.
Credit Mix
Description: This factor evaluates the different types of credit the company uses, such as loans, lines of credit, credit cards, etc.
Impact: A diverse credit mix can indicate strong financial management and improve the score.
Credit Inquiries
Description: Credit inquiries occur when a company applies for new credit. Frequent inquiries can be seen as a sign of financial instability.
Impact: Multiple inquiries within a short period can reduce the credit score.
Major Business Credit Rating Agencies
In the U.S., several agencies are responsible for calculating and providing business credit scores. The three main ones are:
Dun & Bradstreet (D&B)
PAYDEX Score: This score ranges from 0 to 100, primarily based on the company’s payment history.
Experian Business
Intelliscore Plus Score: Ranges from 1 to 100, evaluating factors such as payment history, credit trends, company age, and more.
Equifax Small Business
Business Credit Score: Considers similar factors, providing a range that helps lenders assess credit risk.
Tips for Improving Business Credit Score
Pay on Time: Ensure all bills and debts are paid promptly.
Reduce Debt: Keep debt at a manageable level relative to your income and credit capacity.
Monitor Credit: Regularly review your business credit reports to spot and correct errors.
Diversify Credit: Use different types of credit responsibly.
Avoid Frequent Inquiries: Limit new credit applications to avoid multiple inquiries in a short period.
Conclusion
A business credit score is a vital tool that affects a company's ability to obtain financing and favorable terms. Understanding the factors influencing this score and taking steps to improve it can significantly impact a company's financial success. For more information and resources on managing business credit, regularly check your credit reports and follow responsible financial practices.
At Capifinders, we are ready to listen to your needs and help grow your business in the best way possible. Schedule a free call with us.
