Introduction
Companies use business credit profiles to determine whether to do business with you and in what way. Your business credit record is an aggregate of things like when you started your business, how many employees you have, your previous experience and leadership team, and annual sales. Your personal credit score will also weigh heavily when you are first starting your business and have limited sales. You can think of all of this as your business financial report card.
Your business credit profile includes:
Payment and banking data from company suppliers
Suits, liens and judgements, UCC’s, business registrations, incorporations and bankruptcy filings from state and county courthouses
Corporate financial reports
Contracts, grants, loans, and debarments from the federal government
Web mining
News and media
Yellow Pages and other print directories
(Potentially) direct investigations and interviews with company principals
Good credit is incredibly important for many reasons. Your business credit rating will impact your ability to access finance, receive favorable terms on business loans (like lower interest rates), lower rates on insurance policies, limit the amount of personal liability, and much more!
How is Credit Rating Calculated and What’s Considered Good?
As listed above, credit ratings and profiles are defined by a number of different factors. There are three main credit rating bureaus: Dun & Bradstreet, Equifax, and Experian. They each have their own formula for determining a company’s creditworthiness. Unlike consumer credit, which is fairly standardized across the board, business credit rating can vary based on the reporting and metrics used by the various credit rating agencies. Because of this, a “good” credit score for your business also varies. Let’s take a look at the ranges for Dun & Bradstreet vs. Experian:
Dun & Bradstreet
80 - 100 | Good
50 - 79 | Ok - on average, you are paying between 15 to 30 days late
0 - 49 | Bad - the majority of your payments are overdue
Experian
76 - 100 | Low Risk
51 - 75 | Low - Medium Risk
26 - 50 | Medium Risk
11 - 25 | High - Medium Risk
11 - 25 | High Risk
How to Find Out your Business Credit Score
All credit rating agencies will provide you with your credit score rating. However, most are expense. Nav.com offers a free business credit profile. Dun & Bradstreet also offers a one time free credit report for your business.
Achieving a Good Business Credit Score
As with personal credit, different activities, usually around payment, will impact your score. Since each credit rating agency has their own method of calculating your business credit score, the impact of each of these activities will also differ. However, there are some general approaches to improve and/or maintain a healthy business credit:
Pay On Time - This has a huge impact on credit. Lenders want to know that they can trust you and your ability to pay for the things you purchase.
Use Credit Smartly - Credit cards act as proof that you are able to borrow and pay back what you owe without issue. This might be a loan or a credit card.
Keep Clean Personal Finances - Especially when you are first starting your food business, your personal finances will have a major impact on your business credit score. Again, all of these credit rating agencies are trying to determine how much they can trust your business and they look to you, the founder, as a proof of concept.
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