Understand What Business Credit Reports Are and Why They Are Vital to Your Business Creditworthiness

Money is key to growing your business, and if you don’t have the cash for expansion right now, you’re probably looking for business funding. Business lenders rely on several factors to decide on the businesses they are going to finance. They typically use a business credit report that shows your payment history and a calculated credit score when deciding what terms to grant you.

Here, we’ll dig into what these business credit reports are, how they’re calculated and what they mean to you.

Personal Credit Reports vs. Business Credit Reports

Before discussing the reports themselves, it’s worth understanding the difference between business and personal credit reports. Every adult in the U.S. has a personal credit report based on several factors like repayment frequency, credit utilization, number of accounts and several other areas.

These areas are consolidated together to calculate your FICO score, which is an overall measure of your creditworthiness. Your credit report typically contains this FICO score along with the details of your credit history.

Business credit reports are based on similar factors as personal reports, but are scored slightly differently. Here’s a comparison of the two types of report:

  • Both personal and business reports and scores are based on areas like credit utilization, on-time payments, credit history, outstanding debts, etc.
  • Business scores also take into account areas like the sector and industry risk, company size, etc.
  • Personal credit scores range between 300 and 850, with higher scores being better
  • Business scores tend to run from 0-100 or 0-300, depending on the agency
  • The three main personal credit report agencies are Experian, Equifax and TransUnion
  • The three main business credit report agencies are Dun and Bradstreet, Experian and Equifax
  • Some lenders will use your personal credit report and score in addition to your business report and score when deciding whether to provide financing

Let’s look at how the main three business credit agencies provide credit scores and reports.

How Business Credit Reports can Differ

Each of the three agencies (Dun and Bradstreet, Experian and Equifax) may hold different information about your business. In addition, each one uses slightly different calculations and algorithms to create your report and business credit score. It’s useful to understand business credit reports from each agency so you can get a complete understanding of how they view your business.

Dun and Bradstreet Credit Reports and Scores

Dun and Bradstreet uses a credit score and reporting system called “PAYDEX.” It is based on the number of payments made to creditors, and how early or late each payment was.

Dun and Bradstreet uses supplier payments (e.g., for outstanding invoices) to determine the PAYDEX score. Early payments increase PAYDEX scores, while late payments reduce it.

The PAYDEX score runs from 0-100 and tells suppliers how quickly you pay your bills. It can help you get more favorable terms on trade credit and payments, which can give you more time to pay bills and enhance cash flow management.

PAYDEX ranges breakdown as follows:

80-100: Low risk of late payment, meaning your business generally pays within 30 days

50-79: Medium risk of late payment, meaning your business pays within 15-30 days after the due date

0-49: High risk of late payment, meaning your business pays more than 30 days after the due date

Experian Credit Reports and Scores

Experian uses a credit score and reporting system called “Intelliscore Plus.” It is a calculated credit score that determines risk of late repayments or delinquency. This score is based on over 800 commercial and personal variables, as well as statistical modeling and algorithms.

These variables can include collection information, overdue payments, credit searches, account activity, financial ratios and business statistics.

The Intelliscore Plus runs from 0-100 and tells lenders how likely you and your business are to repay debt. They will use this information to decide whether to lend to you.

Intelliscore Plus ranges breakdown as follows:

76-100: Risk class 1 (low)

51-75: Risk class 2 (low-medium)

26-50: Risk class 3 (medium)

11-25: Risk class 4 (medium-high)

1-10: Risk class 5 (high)

Equifax Business Credit Reports and Scores

Equifax also provides business credit score reports; their methodology is more closely tied to how personal credit scores are calculated. Their reports are based on several factors:

  • Business demographics
  • Public records (including judgments and bankruptcies)
  • Trade payment history to suppliers
  • Financial payment history to lenders
  • Ownership and identifying information

Equifax credit reports are made up of different areas:

  • Traditional credit risk score of 100-992, based on many of the same factors as a personal credit score
  • Payment Index score of 0-100 that shows how often you pay your bills on time
  • Business Failure Score of 1,000-1,880 that measures how likely your business is to survive

As you can see, there are plenty of ways your business credit can be scored. If you want to view your business credit report, you can get one from each of these agencies (although the costs can be high).

The Likelihood of Your Business Getting Financing

Your business credit report, score and history are major factors in determining your eligibility for business financing, but they are not the only factors. Financial institutions may also look at other areas, including your:

Business credit scores aren’t just used for fixed and variable loans; they can also affect payment terms, insurance, interest rates and lines of credit.

What If You Need Business Financing But Have a Poor Credit Report?

We understand the difficulties new businesses face when you’re trying to get funding. Banks, the Small Business Administration and other lenders will often turn businesses away because they don’t have a lengthy credit history (or they have a bad credit report).

If this is your situation, we can help. We can provide you with a merchant cash advance, which is a funding mechanism that’s based on your future invoice receipts. We typically don’t need a credit score, and we offer funds to young businesses too.

Find out how our merchant cash advances can help you.

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