In premise, businesses do in fact have credit scores, and even though they are similar to consumer credit scores, they are not remotely identical.
In this article, we will take a closer look at the differences between each, the types of business scores, as well as how to increase them.
If that sounds like something you want to know – and if you’re a business owner, you should know about it – keep reading.
Business Credit Scores vs Personal Credit Scores
In some ways, a business credit score is similar to a personal credit score. For instance, they fall within a range. Therefore, the higher the score, the lesser the assumed risk.
A business with a higher score has a better chance of acquiring financing, and a higher business credit score means you will be charged with a lower interest rate on that loan.
In many other ways, business credit scores are nothing like personal credit scores. For instance, scores generated for individuals by VantageScore or FICO usually range from 300 to 850. However, these ranges are different for a business. A scoring model might be from 1 to 100, or 0 to 300, 101 to 992.
In addition to the credit data such as balance, credit limits, open accounts, credit, the credit report might also consist of industry, company info, payment index, public records, etc.
One other difference is that there is no federal law regulating credit reports for businesses. Because business credit is not covered under the FCRA, anyone can access credit information about a business. You also don’t have the right to request free credit reports each year, as well as you cannot freeze a report.
Does business credit affect an individual’s personal credit? Well, it’s possible. Most business credit loans require a guarantee, which means personal assets can take a hit if there is a default. In some cases, business credit cards are reported on your personal credit reports as well.
Do Businesses Have Credit Scores? The Many Types Explained
Equifax, FICO, Experian, Dun & Bradstreet are some of the most common agencies providing credit scores. Let’s take a look at each.
Equifax
The score ranges from 101 to 992. It represents the risk of severe delinquency on any given credit account.
FICO
The score ranges from 0 to 300. It’s based on a mix of personal and business credit history.
Experian
The score ranges from 1 to 100. It predicts the risk level that is associated with the pertinent business.
Dun & Bradstreet
This score ranges from 1 to 100. It shows not only if you pay your bills on time, but as well when you have paid them.
And that’s about it. Of course, there are other credit reporting agencies, but these are the most recognized and common of them all. To learn more about each, visit their subsequent websites. You will be able to learn how to improve your score in no time.
How To Improve Business Credit Score
Before you can start to improve your business score, you will need to develop a business credit file. This is not automatically occurring when you obtain your license or file your business name. Learn how to build business credit fast below.
To prompt the creation of such file, you must:
- Form an LLC or corporation
- Obtain an Employer Identification Number
- Open business accounts in the business name
- Obtain a telephone number in the business name
- Obtain a D-U-N-S number
- Get accounts that report payment history to all agencies
For a small business owner who does not want to incorporate, it’s possible to establish this file otherwise. You must begin with your fictitious business name, a D-U-N-S number, a business account, and an EIN. After this, apply for a credit card or loan in the name of the business.
Once the file has been created, there is no trick to getting a good score. Proactivity is key. If you’re new, take credit. A guarantee might be required, but include your D-U-N-S number, and over time, after showing that your business can pay on time, you can request removal of the guarantee.
A Note On Credit Agencies
To build payment history, establish accounts reported to the credit agencies. For instance, Dun & Bradstreet requires three separate accounts to create a Paydex score.
For Experian, an Intelliscore and a report can be generated with one account. Also, besides a business credit card, open your trade account with a vendor who reports regularly.
Major lenders and banks are guaranteed to report. Large vendors, such as Lowe’s or Home Depot are also examples of reporting agencies. Simply ask the vendor if they report.
Also, Dun & Bradstreet has a solution for building a business credit score with trade lines that have not been reported. A business owner can provide account and vendor information, and then the agency will reach out to verify such details. The service is not free, and the costs will depend based on the complexity of the situation initiated.
In any case, you can still find such services for free, but it takes time to sort through the variety of providers that are accredited by the government for such purposes. If you’re interested in doing so, feel free to visit the IRS website and use their search bar.
Business Credit Explained
Now that you know the answer to the question of “Do businesses have credit scores?”, you are well on your way to shine your way through the darkness with your newfound knowledge. In any case, even though a business does have a credit score, it’s nothing like a personal credit score and does involve a greater deal of information.
If you’re interested in learning more about similar topics, feel free to check out the rest of our financial or business-related articles on the sidebar or by using the categorical filters.