Many entrepreneurs and entrepreneurs-to-be are curious about business credit scores, and with good reason: These credit scores aspect many aspects of running a business, especially when it comes to financing. This post serves as a primer on the topic.
What They’re Used For
It’s common to wonder what business credit scores are used for. They mainly provide information to lenders on how creditworthy a borrower is. Lenders view businesses with better credit scores much more favorably, because those businesses tend to be more likely to make payments on time. They usually have a history of responsible credit usage and prompt payments.
Businesses may also look up the credit score of other businesses to find out how stable they are. For instance, that can affect whether or not a company decides to use a certain vendor.
Where They Come From
A common question is where business credit scores come from. The answer is that they come from four main companies: FICO, Equifax, Experian, and Dun & Bradstreet. Each company calculates scores in a slightly different way.
FICO’s model pulls data from credit bureaus. A business owner’s personal credit score can also affect their FICO rating. FICO scores range from 0 to 300, with 300 indicating the lowest amount of risk for lenders.
Equifax’s model focuses on your business’s payments to creditors, including credit card issuers and banks.
Experian’s model, known as Intelliscore Plus, uses more than 800 variables, according to the company. It gives each business a risk score, and personal credit scores may come into play.
Finally, Dun & Bradstreet scours a large database of records to formulate a picture of each business’s creditworthiness. The company also uses a unique feature known as a D-U-N-S Number that businesses can register for. Dun & Bradstreet rates businesses on several metrics, including something called the PAYDEX score, which rates businesses on a scale of 1 to 100. The higher the score, the less likely a business is to miss payments.
Curious about other topics? Just check out our Prosper Lending Firm’s other blog posts.