Business Credit Score: Demystifying Its Impact on Small Business Owners

Business Credit Rating Organizations Explained

Dun & Bradstreet

Dun & Bradstreet (D&B) collects a variety of financial data, public records, and industry information to generate several distinct, yet interrelated, business credit scores and supplemental information. High level details on its primary offerings are outlined below.

• The PAYDEX Score is a widely referenced measure that focuses on payment history. Lenders, vendors, and other creditors use it to make financing determinations and establish credit terms. Scored on a scale of 1 to 100, an 80 or higher indicates a company pays its bills on time or up to 30 days early.
• The Delinquency Predictor Score, a forward-looking measure derived from D&B’s proprietary statistical models, focuses on the probability of a company paying its bills late. It is scored on a 1 to 5 scale, with 1 at the low end of the risk spectrum and 5 at the high end.
• The Failure Score is another forward-looking measure. It focuses on the likelihood of a company ceasing operations within the next 12 months. It is also scored on a 1 (low risk) to 5 (high risk) scale.
• The Supplier Evaluation Risk (SER) Rating is geared toward businesses that are heavily dependent on supply chains. It helps predict the probability of a supplier suffering significant business disruption or insolvency in the next 12 months. It is scored on a 1 to 9 scale, with 1 at the low end of the risk spectrum and 9 at the high end.
• The Cyber Risk Rating is a relatively new offering. It assesses a business’s vulnerability to cyber threats and the potential financial impact of a breach.
• The Maximum Credit Recommendation is a unique feature that complements the aforementioned scores. As the name suggests, it offers D&B’s guidance as to the maximum amount of credit that should be extended to a business.
• The D&B Rating provides a holistic assessment of a business’s creditworthiness. It incorporates the scores and ratings above, along with consideration of company size and financial condition, to generate an overarching rating. The intent is to help users make quick sense of all the information in a business credit report.

Equifax

Equifax offers an interrelated set of business credit scores – the Payment Index, the Credit Risk Score, and the Business Failure Score. Equifax uses a variety of data sources to establish these scores, including credit history and utilization trends, public records, and both industry-specific and business-specific financial information.

Key aspects of each score are outlined below.

• The Payment Index focuses on payment performance over the past 12 months. Scored on a scale of 1 to 100, a score of 90 or higher is reflective of a business that consistently pays its bills early or on time.
• The Credit Risk Score measures the probability of a company becoming severely delinquent on future payments. Scored on a scale of 101 to 992, a rating of 700 or higher is considered good.
• The Business Failure Score measures the likelihood of a company ceasing operations within the next 12 months. Measured on a scale of 1,000 to 1,610, a score of 1,315 or higher indicates a low risk of insolvency.

Typically, banks and other financial institutions are the primary users of Equifax’s scores, as they are often used to make loan qualification decisions.

Experian

Through its Business Credit Score (Intelliscore Plus), Experian quantifies the risk of a business making delinquent payments or defaulting on them altogether. Unlike other credit rating organizations, Experian requires no self-reported business information to do this. Rather, the bureau utilizes over 800 variables to establish its proprietary score, collecting data on both businesses and their owners via public records, credit history reports from lenders and vendors, and general information gleaned from independent sources, such as credit card companies and marketing databases.

Measured on a scale of 1 to 100, a score of 76 or higher is indicative of a low risk business. Incidentally, banks and other financial institutions are the primary users of Experian’s score, as it is often incorporated into credit application evaluations.

FICO Small Business Credit Score

Unlike D&B, Equifax, and Experian, FICO is not a credit rating bureau. It is better characterized as an aggregator, which utilizes information obtained from D&B, Equifax, and Experian to produce its scores.

FICO’s holistic credit scoring process is branded the LiquidCredit Small Business Scoring Service (SBSS). Banks and other financial institutions often leverage it when evaluating Small Business Administration (SBA) loan applications and other credit requests. Scored on a scale of 0 to 300, the baseline score of acceptability is widely considered to be 160, which satisfies the SBA’s dynamic screening standard, which has recently fluctuated between 140 and 160.

How to Check Your Business Credit Score

Unlike personal credit reports and scores, business credit reports and scores aren’t available for free, even if you’re the owner of the business. Nevertheless, it’s a good idea to periodically monitor your credit score information. Doing so will provide insight into your current borrowing potential and facilitate the correction of any erroneous information you find.

To start the process, visit the rating organizations’ official websites. If necessary, you can flesh out the specifics with their sales representatives. To facilitate the process, some basic information regarding the baseline purchase options is provided below.

More comprehensive packages are available for some organizations, but they entail additional costs. You can learn more about how to check your business credit score step by step in our article.

Final Word 

A business credit score is a numeric rating that provides an indication of a company’s creditworthiness. It reflects information from a company’s credit report, which includes payment history, outstanding debt, credit utilization trends, and other key financial data.

For creditors, the credit score is an invaluable tool that helps them assess the risk of lending you money. From their perspective, the stronger the rating, the more likely you are to pay obligations in a timely manner. Not surprisingly, the score garners a lot of attention and guides a variety of decisions, such as whether or not to approve a loan, secure collateral, or extend deferred payment options.

For a business, the outcomes of these decisions can have a significant impact on growth potential and future cash flows. So, it’s wise to monitor and manage your business credit score in a responsible manner.