What is a good business credit score and how to improve yours?

What is a good business credit score? Most of us are familiar with the term “credit score,” but what does it actually mean, and how does it affect business?

Just like individuals, businesses have credit scores. Good credit is vital for business growth. A high business credit score helps you secure necessary funding.

Building and keeping a good business credit history is key. It helps you build strong relationships with suppliers and banks. This also shows that you’re a reliable business.

What is a business credit score?

A business credit score measures your financial health and creditworthiness. It looks at your payment history, any legal judgments, and past bankruptcies. Lenders and suppliers use this information to assess the risk of doing business with you.

Why is business credit important?

Even if business credit seems unimportant now, it can be vital later. You may need credit to stay stable during tough times or to fund growth.

A good credit score increases your chances of:

• Getting business loans at lower interest rates
• Securing cheaper insurance premiums
• Enjoying better payment terms with vendors
• Obtaining a business credit card

Financial models can help you plan for future needs. A strong credit score prepares you for any financial risks ahead. Lenders want to feel confident that you'll repay them. Your business credit score shows how likely that is.

While a bad score doesn’t mean you can’t get credit, it limits your options and may lead to higher fees.

How are business credit scores calculated?

Three major business credit bureaus calculate these scores: Experian, Dun & Bradstreet, and Equifax. They gather data from banks and credit card companies. They look at your business’s payment history, revenue, and debt. This helps create a picture of your overall financial performance.

Factors that can impact your score include:

• Payment history
• Business size
• Company accounts
• Years in operation
• Outstanding debt
• Type of financing
• Credit utilization ratio
• Industry risk
• Trade history
• Pending finance applications

You can check your business credit report through these bureaus.

What is a good business credit score?

Understanding what a good score is helps you compare your business with competitors. Each business credit reporting agency has its own scoring model. But let’s take the Experian scoring model as an example.

Experain’s business credit scoring system ranges from 0 to 100. A higher score means less risk for lenders, while a lower score indicates higher risk.

An Experian credit score above 80 is considered excellent. This opens doors to better financial deals. If your score is between 40 and 80, lenders may see you as medium-risk. You might need to provide extra info to suppliers and lenders.

If your score is below 40, it’s time to take action. You may have faced challenges finding suppliers or securing financing. But don't worry! You can improve your score!

How do I improve my business credit score?

If you’re starting a new business or have had credit issues, there are ways to boost your business credit score. Here are some tips:

1. Pay bills on time

Paying bills and clearing accounts on time helps you avoid issues. Set payment reminders or automated payments to stay on track. On-time payments prevent debt recovery measures that harm your score.

Using accounts payable software can help you ensure that you never miss a payment. These tools can track invoices and alert you to upcoming payment due dates. A credit card for your business can assist with cash flow issues, keeping you in good standing with suppliers. Just make sure to pay off the balance regularly to avoid high-interest charges and maintain a low credit utilization rate.

2. Use your business credit cards

Using some of your credit wisely can improve your score. Open a secured business credit card and make timely payments. Just keep your utilization rate below 30%. For example, if you have a $10,000 credit limit, try not to carry more than $3,000 in balances at any time.

Low credit utilization shows that you’re not overusing your credit cards, which helps boost your score. Maxing out your cards or carrying high balances, even if you pay them off, can lower your score.

3. Use your business bank account

Always use your business account for all transactions. Some lenders use your bank data to assess your ability to repay. A business account helps show a clear record of your business income, expenses, and overall cash flow. If they see steady deposits and a good balance, you're more likely to be seen as a lower risk. This helps show your turnover. If you receive cash, deposit it to maintain accurate records.

Keep an eye on your balance to cover check, direct debits or ACH/EFT payments. The bounced check or failed payments can hurt your business credit score and relationships with vendors.

4. File full accounts with the IRS

Filing complete accounts with the IRS and the state where your business is registered shows transparency. This builds trust and provides a clearer picture of your financial health. Accurate, timely accounts highlight positive trends.

Apart from the importance of filing your accounts on time, good record keeping in general can help to improve your credit score. If your business records are well-organized, you’re always ready to prove your credentials to credit reporting agencies, lenders, and potential business partners.

If you don’t have one, consider hiring an accountant for your tax return and finances.

5. Focus on growth and profitability

While it’s tempting to appear less profitable for tax purposes, profitable businesses tend to have better credit scores. Why? Because lenders and business credit bureaus often view profitability as a sign of financial stability and reliability. Having accurate accounts and using finance management software shows stability.

Having financial statements to demonstrate growth can help your business credit score, but what are financial reports?

They’re statements that give a detailed and accurate overview of the business finances. Financial reports normally include your balance sheet, income statement, and cash flow statement.

6. Improve your personal finances

This is especially important for newer companies or small business owners (sole proprietors, partnerships, or LLCs). Lenders may check your personal credit history because, without much business credit data, your personal finances show how you manage money overall.

So, pay off personal credit cards or loans on time to show lenders that you’re trustworthy. That kind of trust can open doors to better financing and help you build your business credit faster.

7. Keep your business details up-to-date

Update any changes in your business info, like your address, promptly. Notify the IRS as well as your vendors and suppliers. This will help you get your payments in on time and keeps your credit information accurate.

Besides, if a bill or invoice goes to the wrong address, you could miss a due date and hurt your credit score without even realizing it.

8. Monitor your credit score and the scores of businesses you work with

Regularly check your credit score (at least every six months) to see if your efforts are paying off. You can also set up alerts to notify you of any changes so you can act quickly.

For instance, you can dispute errors or investigate potential fraudulent activity. You’ll also get an alert when your credit score improves, helping you decide on the best time to apply for a new credit card or business loan.

Final thoughts

Access to credit is crucial for businesses. It can provide a safety net during tough times or support growth. Building a good credit score takes time, so consistency is key.

FAQs

Does an LLC have its own credit score?

An LLC (limited liability company) operates as its own legal entity, so it also has its own credit score that’s different from its owners’ personal credit scores. The LLC credit score typically doesn’t affect personal credit scores—unless you default on a loan that you’ve personally guaranteed for the LLC.

Is personal credit linked to business credit?

In most cases, your business credit score is linked to financial performance, so it has no bearing on your personal credit report. However, if you want to apply for a credit card or a loan for the business, you may need to offer a personal guarantee. And you’ll need good personal credit to do that.

How do business credit scores differ between Equifax, Experian, and Dun & Bradstreet?

Equifax scores your company with a payment index from 0-100 that shows your past payment history (aim for 90+), and assigns a business credit risk score (101-992; high score = low risk) and a business failure risk score (1,000-1,880; again a high number denotes less risk).

Experian assigns a business credit score from 1-100 (a higher score is better) and a financial stability risk rating from 1 to 5 (lower is better). Dun & Bradstreet gives you a Paydex score (1-100; 80+ shows low risk), plus a failure score (1,001-1,875) and delinquency score (1-5) where lower scores are desirable.