Business Credit – What is it and How Does it Work?

Business Credit – What is it and How Does it Work?

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December 20, 2019

Your business has credit, just like you do. If you’ve been in business for a while, you may already have a credit score and not realize it. Knowing what your score says about you is important.

A high credit score gets you better loan rates and more loan possibilities. A low credit score could leave you without the financing you need or the service of desired vendors.

Just like your personal credit score, your business credit score shows your ability to manage your finances. It’s what lenders use when you apply for new loans. Depending on how long your business has been around, your business may have a credit history and credit score. If you have a newer business, you may not have a business credit score quite yet, but you can build one.

If you don’t know how your business credit score works or how you even get a credit score, read on.

Why Should You Care About Business Credit?

You may wonder why your business credit is important, especially if you have a good personal credit score. Unlike your personal score, your business score helps you get business funds. Whether you need funds to expand your business, manage operations, or you just want a business credit card, you need a business credit score.

Just like with a personal score, the better your business’s financial history, the better terms you’ll get on loans and credit cards. Banks don’t always look at your personal credit score when determining your business’s ability to repay a loan.

Where business credit scores really play a role, however, is with your vendors and suppliers. Unlike your personal score, anyone can get their hands on your business credit score. Potential vendors may look into it before deciding if they want to sell to you and at what terms.

Where do you get Your Business Credit Score?

Like your personal credit score, there are three business credit bureaus – Dun & Bradstreet, Equifax, and Experian. You can contact each bureau to get a copy of your credit report. The cost varies by bureau and ranges from $39.95 – $99.99.

The exact cost depends on the information you request. If you just want the basic report and score, you’ll pay the least amount. If you want more extensive services, they’ll cost more. A few examples include more in-depth reporting or credit monitoring, which may be important if you’ve been a victim of fraud.

Figuring Out Your Business Credit Score

Each of the three bureaus above have its own algorithms when it comes to calculating your credit score, but in general, they look at the same information.

  • Do you make your payments on time?
  • How much of your credit lines do you have outstanding at one time?
  • How ‘old’ is your credit history? (the older the better)
  • Do you have any collections?
  • How many total credit lines do you carry?
  • Do you have any public records?

Each of the three bureaus focuses on different aspects of your credit history as follows:


Equifax focuses on your payment history as reported by vendors. They come up with a Payment Index, which is a measurement of your payment history and ranges from 0 – 100.

Equifax also supplies a Credit Risk Score. This lets future lenders and vendors know how likely you are to miss a payment. It takes into account many factors including your credit history length, how much of your credit lines are outstanding, and how many late payments you’ve made.

Finally, Equifax calculates a Failure Risk Score. This lets lenders know your likelihood of remaining open for at least the next year.


Experian’s credit score looks at more than your payment history, but also goes from 0 – 100. They look at your current outstanding balances, how they compare to your available credit lines, public records and/or collections, the size and age of your business in addition to your payment history.

Dunn & Bradstreet

Dun & Bradstreet offers several credit scores, of which the most common is the PAYDEX. This lets lenders know how risky it is to lend to you. The scores range from 0 – 100, with 80 or higher being the best score. This score is based on your payment history, which is why paying your bills on time is crucial.

D&B offers a couple of other credits cores including:

  • Delinquency Predictor Score
  • Financial Stress Score
  • Supplier Evaluation Risk Rating
  • Credit Limit Recommendation
  • D&B Rating (a measurement of your payment history plus information about your business’s size and financials

Starting Your Business Credit Score

If your business doesn’t have credit yet, it’s time to start. While it’s almost like a double-edged sword trying to find ways to get credit when you don’t have a credit history, there are a few ways you can establish yourself.

Set up Your Business Properly

It’s important to separate your business from your personal life. Registering your business is one way, but incorporating or forming an LLC is a better option. Talk to your financial advisor about the right structure for your business. Each entity has different tax benefits and suits businesses of different sizes. The important factor is separating the business from your personal life.

Get an EIN

Separating your business income from your personal income is easier with an EIN or employee identification number. Rather than giving out your social security number, you share the EIN. This is specific to your business. This protects your personal information and gives you a chance to build your business’s history.

Open a Bank Account

Don’t mix your personal and business finances. Open a business bank account in your business’s name. All money that you bring in from your business should go into your business checking account, just as all business expenses should be paid out of it.

Not only will a business bank account help you establish yourself as a reputable business, but it will make your life a lot easier come tax time. Separating your business and personal income/expenses can be tedious and time consuming otherwise.

Apply for a Business Credit Card

You may not get a large credit line right off the bat, but every little bit helps. If you have a business bank account and an EIN, you may be able to score even a small business credit card. Use it often and pay the balance off in full to show that you’re financially responsible.

Keeping Your Business Credit Score High

Once you start building a business credit score, you want it to stay as high as possible. While we all know life happens, there are a few ways you can ensure your score stays high.

Use Vendors That Report to the Credit Bureaus

Not all vendors report your payments to the credit bureaus. Before you enter an agreement, find out if a vendor does or doesn’t report. While you may not be able to get every vendor to report on your behalf, the more vendors that do, the higher your credit score will climb.

Pay Your Bills on Time

Just like in your personal life, your payment history plays the largest role. Make sure you pay close attention to the payment terms and that you get your payments in on time. This goes for credit cards, vendors, and suppliers. You never know who is reporting your payment activity to the credit bureaus.

Keep Your Outstanding Balances Low

It’s best if you pay your credit card balances off in full each month. However, that’s not always possible. Make sure you keep track of how much you have outstanding at one time and try to pay off one balance before charging anything else. Your credit utilization rate or the comparison of your outstanding debts to your credit lines plays a large role in your credit scores too.

Watch Your Credit

Unfortunately, fraud is a real risk today. You have to watch your credit reports often. Take the time to pull your reports and look at the information provided. Is everything accurate? If so and you notice areas you could do better, fix things as fast as you can.

If you notice errors, report them right away. Remember that each of the three bureaus reports different information, so check all three. You may have to provide evidence as to why the issues aren’t correct. If the credit bureaus sides with you, they’ll remove the error from your credit report which should help your score improve.

Your business credit score says a lot about your business. Just one number can let vendors and lenders know if you’re a good risk. It’s important to do whatever it takes to improve your business credit score or establish one in the first place. Your business’s success relies on this factor. A risky score could mean that vendors and lenders don’t want to take a chance on you, which could make it harder to do business. Get your business credit score in order today.

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