What is a good business credit score? Everything you need to know

You know a good personal credit score is critical for getting the best rates on everything from credit cards to mortgages and car loans. But did you know your business credit rating is just as important to the health of your business?

If you find yourself asking questions like, “What is a good business credit score?” or “How do I establish business credit?,” you’re not alone. Consider this your go-to guide to building a solid business credit report.

• What is a good business credit score?
• Why your business credit report matters
• How you can establish a business credit score
• How you can improve your business credit score

What is a good business credit score?

Understanding a good credit score is one major key to overall business success. After all, having a good business credit score can lead to lower interest rates, access to the necessary financial resources needed to grow your business, and better trade credit. 

Good (or high) business credit scores are considered a low risk for lenders and creditors, while low credit scores are considered risky for lenders. Therefore, it’s critical that you not only nurture your business credit score but also understand the ins and outs of what constitutes a good credit score. 

Below we’ve listed the four main business credit scoring systems, along with the business credit score ranges that are considered favorable: 

• Dun & Bradstreet PAYDEX: Lenders look for a business credit score of 80+ on a 0 to 100 scale. 
• Intelliscore Plus from Experian: Lenders look for a business credit score of 76+ on a 0 to 100 scale.
• Equifax Business Credit Report: Lenders look for a business credit score of 570+ on a 101 to 992 scale.
• FICO’s Small Business Score: Lenders look for a business credit score of 140+ on a 0 to 300 scale.

It’s important to note that your FICO Small Business Scoring Service (SBSS) also incorporates your personal credit score, creating a hybrid score. Since the small business owner and their business are often intertwined, this score has become a key factor in assessing and establishing the business credit validity of small businesses.

Why your business credit report matters

While you might know why having a good personal credit score is important, the need for a solid business credit score might not be so obvious. If you’re just getting started in your small business, you might still be using your personal credit to do the necessary borrowing for your company. Some reasons to establish business credit include: 

• Account separation: By establishing a business credit profile, you essentially add a layer of separation between your personal and business finances. This in turn makes it easier for you to track your expenses appropriately for tax purposes. 
• Increase in borrowing power: By demonstrating strong business credit, you might be considered for larger amounts of credit. This can prove beneficial for things like business expansion or renovation.
• Easier financing: Having a solid credit profile can help you increase your chances of small business loans or other lines of credit with favorable interest rates. 
• Better insurance rates: As might already know, insuring your small business can get expensive. Having a good business credit score is one way to keep your rates low. 

Remember, suppliers and lenders will check your business credit to: 

• Elect to do business with your company
• Decide whether to give you small business loans
• Determine insurance premiums and interest rates
• Establish payment terms
• Choose whether your small business bank account should be sent to a third-party collection agency, should you become delinquent

Your business credit report can have a profound effect on your small business’s success, including how you are viewed by others. Taking the time to educate yourself on business credit will only help you and your business in the long run. 

How to establish a business credit score

Now that you understand why having a good business credit score is important, you might be wondering how to establish a business credit score in the first place. Some of the steps are similar to setting up your business, and include:

• Establishing a business structure: If your business is a sole proprietorship, it can be challenging to keep your business and personal finances separate and establish stand-alone business credit. Consider whether forming an LLC or corporation could be the right structure for your business.
• Registering for an Employer Identification Number (EIN): This nine-digit number, like a Social Security number for businesses, is assigned by the IRS. Your EIN is needed to apply for a business permit, open a business bank account or credit card, and other various business activities. 
• Separating your business and personal finances: Opening independent business banking accounts and credit card accounts establishes you as a legitimate business and can streamline accounting and tax preparation.
• Seeking business credit: Depending on the type of business you run, having credit available can be valuable to take advantage of growth opportunities or to supply a financial cushion should you run into a cash flow crunch. It also helps you manage your credit utilization—that is, how much of your available credit you are using. The optimal ratio is using less than 30% of each line of credit.
• Obtaining a business loan: Business loans and lines of credit are powerful tools for funding necessary expenses, such as hiring and marketing, or covering unexpected emergencies without tapping a high-interest credit card. They also present an excellent opportunity for building your business credit rating.

How to improve your business credit score

Similar to a personal credit score, the key to improving a business credit score involves two key steps: establishing credit and building on existing credit success. Below are just some of the ways that you can improve your business credit score:

• Make timely payments: You can be assured that all agencies place premium weight on one factor—the payment history you have with suppliers, creditors, and lenders. Building a strong balance sheet to make sure that funds are collected and disbursed on time is critical to all aspects of your business, including your ability to build and maintain a good business credit score.
• Work with partners who report to the business credit bureaus: You can be doing everything right in terms of payments, but if your good work is not being reported to the bureaus, it won’t be accurately reflected in your score. Verify that the vendors you work with report payments; if they don’t for one reason or another, consider working with those who do.
• Pay down outstanding balances: Credit utilization is another major factor that impacts your business credit score, so making sure that you are paying down hefty balances is a priority. First, focus on accounts that have the highest interest rate, and then move down the line, paying off creditors according to the interest rate. 
• Keep accounts open: Even if you don’t use a given card anymore, closing too many accounts limits how much credit you have available and can also impact your score. It might be worth it to keep a credit card open even if you don’t use it often anymore, and potentially even keep one recurring bill—say, your business cell phone—to keep it active.
• Talk to your creditors: Managing the finances of a small business can be tricky. After all, if a client doesn’t pay you in a timely manner, you then may not be able to pay the creditors you owe. If you find yourself struggling with your accounts payable, let creditors know what’s going on with your business and make a good faith effort to pay down your bills. You may find them amenable to working out a payment plan directly with you instead of reporting the late payment to the credit reporting agencies. Make sure to avoid taking advantage of this opportunity too often as it could damage your business reputation with the creditors. 
• Check your business score regularly: Unlike personal credit scores, there are no “free” avenues for a business credit check. However, it’s worth it to contact the bureaus and request a report every so often to make sure there is no erroneous information and to see which accounts are negatively impacting your score. Checking a business credit score can range in price depending on the depth of information you’re checking, so it’s best to check with each reporting agency separately. 

Understanding the elements of a good business credit score is crucial for success as a small business. By focusing on how to build business credit, you will be establishing a strong foundation to grow your business in the future.