How to Boost and Manage Your Business Credit Score

Woman checking an electricity bill, she is making a contactless payment using her smartphone

There are many important measures of your business’ fiscal health – your profit and loss statement, balance sheet, cash flow statement, to name but a few.

But another metric that requires your attention is your business credit score.

If you’re seeking financing, the creditworthiness of your business is a significant factor in the approvals process – since it helps lenders evaluate whether you’ll pay repay debt on time.

Furthermore, a healthy credit score can help you secure favorable terms with suppliers, insurance companies, and any form of lease, be it a vehicle or property. But if you break these terms, your vendors can also negate your score.

Sounds a lot like your personal credit score. But here’s a crucial difference – your personal credit report permission can only be accessed with your permission. Anyone can pull your business credit report.

If you haven’t thought about your business credit score, here are some tips for building and managing it.

  1. Understanding Business Credit Scores

Similar to your personal credit score, your business credit score is calculated by a number of factors such as your history of on-time payments, how much credit you use on a monthly basis, and any past collections or bankruptcies. Other factors include industry risk and your business’ size.

One of the most common business credit scores used by lender and suppliers is Dun & Bradstreet’s PAYDEX score. The model analyzes a business’ payment performance and scores it on a scale of 1-100. Similar to your personal FICO score, the better the score the more likely you are to secure a loan or better terms.

  1. Separate your Business and Personal Finances

It’s best to start building your score as soon as possible, so that you have a track record in place should anyone pull your file.

A key step in the process is separating your business and personal finances.

Start by applying for a Federal Employer Identification Number (EIN) from the IRS. An EIN is the business equivalent of your Social Security number. Then use that number to open a business bank account in your legal business name (forming an LLC first is advised too). Opening a business account will help ensure that creditors and suppliers can validate your business information. It’s also a good idea to apply for a business credit card and use it often, paying your bills on time.

As a rule of thumb, keeping the business and personal separate is good practice for any business owner since it makes tax preparation, record keeping, and growth a lot easier. It also protects your personal credit, should your business get into financial trouble.

  1. Apply for a D-U-N-S Number

A D-U-N-S number is a universal, nine-digit identifier for your business and is used to establish a business credit file (often referenced by lenders and suppliers). A D-U-N-S number ensures that anyone who pulls your file sees accurate, up-to-date information about your business. It also establishes your PAYDEX score. You can register for one through Dun & Bradstreet (at no charge).

  1. Add Trade References to your File

Now that you have a credit file you can start building your score. An important way to do this is to encourage your suppliers to share payment data with a business credit reporting agency.

Not all suppliers that you do business with will report to these agencies. However, you can add those references to your business credit file yourself, but only through Dun & Bradstreet’s paid program: CreditBuilder™.  There are also limitations as to which trade references you can add, for example, utilities, landlords, credit card companies, and several other references are excluded.

  1. Practice Good Payment Hygiene

As mentioned earlier, credit reporting agencies track payment habits and performance, paying your bills, or even several days or weeks in advance can improve your score. Another way to build your credit is to apply for trade credit with suppliers.

  1. Choose a Lender Who Reports to your Credit File
  1. Monitor your Credit

Just like your personal credit score and file, be sure to monitor your business credit. If a supplier omits to report your payment performance or makes a mistake, this is your opportunity to correct the problem. Each of the top business credit agencies (Dun & Bradstreet, Experian, and Equifax) offer a range of business credit monitoring and alerting services for as low as $20 per month.

Building a strong business credit score is one of the most important things you can do as a small business owner – maximizing your funding and growth potential, while ensuring you can negotiate the best terms from suppliers and vendors.