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Where to find out your business credit score and how to improve it
Here's how potential lenders rank your business's financial health.
You might know your personal credit score or at least where their credit generally stands. But if you own a business, your business earns its own credit score that can affect whether you’re approved for a business loan and how much financing you receive.
What is a business credit score and where can I get it?
A business credit score is a three-digit number from zero to 100 designed to represent your business’s overall creditworthiness to potential lenders. Generally, the higher your score, the stronger a lender perceives your business’s financial health.
Bureaus like Equifax, Experian and Dun & Bradstreet calculate your business credit score based on information in your business credit file. Each bureau uses a slightly different algorithm to weigh your debts and payment history with vendors, banks and credit lenders.
It isn’t the only factor that goes into your eligibility for a loan — or even a loan’s strongest rates or terms. But it’s a weighty part of the application process that can convince a lender you’re the right business for its help.
Business credit scores can vary between Canada’s 3 main business credit reporting bureaus: Equifax, TransUnion and Dun & Bradstreet (D&B).
Equifax issues 4 different business credit scores:
- Credit Information score (0-70 where 41+ is high risk)
- Business Failure Risk Score (1,001-1,722 where higher is better)
- Commercial Delinquency Score (101-662 where higher is better)
- Payment Index score (0-99 where 60+ is high risk)
TransUnion’s business credit score ranges from 400-800, with 800 being the best.
The D&B Commercial Credit Score ranges from 101-670, with 670 being the best.
How is my business credit score different from a personal score?
While your personal credit scores is attached to your Social Insurance Number (SIN), your business credit score is attached to you by an Employer Identification Number (EIN). A business owner can have multiple EINs, depending on how many businesses they own. That difference makes it possible to have multiple business credit scores among the bureaus.
Personal credit scores are calculated by 2 main bureaus — Equifax and TransUnion — and you can only have one individual profile with each. As mentioned, business credit scores are measured by Equifax and Experian, but also Dun & Bradstreet.
Fewer factors go into a business credit score than a personal one. Also, because consumers have stronger legal protections than businesses when it comes to credit scores, it’s often harder to challenge an account dispute as a business.
What affects a business credit score?
Like your personal score, your business credit score fluctuates over the course of you doing business. Business credit bureaus analyze aspects of your business’s credit history that include:
- Credit inquiries and applications. Your credit shopping patterns can affect your score depending on the frequency and type of credit.
- Payment history. If you’re slow to pay your existing debt obligations, you might see a lower credit score. But overall responsibility and a healthy credit utilization ratio could outweigh a blip or two.
- Years in business. A lender may consider a newer business riskier than one that’s been around longer.
- Black marks on your credit. Defaults, judgments and bankruptcies can mar your score. Liens, lawsuits and delinquent taxes on the public record can also affect your score.
- Your company’s details. Aspects of your company’s structure play into your score, like your legal name, line of business, directors and shareholders and even business classification codes.
How do I avoid damaging my business credit score?
Business defaults and late or missed payments are some of the main contributing factors to a low score. Here are three tips to avoid damaging your score:
- Look after your credit utilization ratio. Your credit utilization ratio is a figure that describes the percentage of credit you’re using versus your total available credit across all of your accounts. This ratio is one of the biggest factors in determining your credit score. As a rule of thumb, you’ll want to keep this ratio around 30% or less. Having a greater percentage over a long period of time can start to chip away at your hard-earned credit score.
- Don’t open many lines of credit. It can be tempting to chase rewards and offers, but it can harm your business’s credit standing. That said, if you have older lines of credit that you use minimally, keep them open if you’ve had a good repayment history.
- Know your score. You can’t address a problem if you don’t know it exists. Knowing where you stand can help you address any issues to improve your score — or catch an issue before it drags down your score.
How do I improve my business credit score?
To improve your business credit score, you need to first establish one by applying for a form of business credit. Experts say that it’s good to have at least 3 accounts and build a history of timely payments. Otherwise, the business credit reporting agencies won’t have anything to report.
While it’s helpful to use the credit you have, take caution to use it only when your business needs it. If your business has the cash flow and doesn’t need a loan to finance expenses, instead look into a business credit card or line of credit to access business financing only when you need it.
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