The Ultimate Guide to Business Credit Scores

Investing in or working with a business that has poor credit is akin to building a house on a shaky foundation—without a solid base, your odds of long-term success are uncertain. That’s because poor credit can lead to challenges such as smaller loans, higher interest rates, and increased commercial insurance costs.

These risks emphasize the importance of researching a potential business partner’s financial health before engaging with them. Without a clear picture of a business’s finances, any involvement could jeopardize your capital or reputation—or both.

One key indicator that can give valuable insights into a company’s financial reputation and reliability: their business credit score. Below, we explain the importance of business credit scores as well as the benefits of running company credit reports alongside full business background checks.

What is a Business Credit Score?

Just as a personal credit score reflects an individual’s level of financial responsibility, a business credit score provides a snapshot of a business’s financial health. To potential lenders, partners, insurers, and investors, it’s a number that indicates how risky a business is, with a higher score signifying lower risk. 

Business credit scores are affected by a number of factors, all of which are captured in a business credit report:

• Payment history
• Debt
• Length of credit history
• Any bankruptcies, liens, or judgments against the business

A business credit report provides a high-level summary that helps external stakeholders make informed decisions about extending credit, entering into contracts, or forming business relationships with a given company.

Why are Company Credit Scores Important?

Many business owners neglect to run credit reports on potential partners, whether because a trusted friend or colleague makes the introduction, or the interaction feels positive and legitimate. However, appearances can be misleading. To err on the side of caution, it’s best to always verify a company’s financial health through a credit report.

As a reflection of a company’s financial trustworthiness, business credit scores significantly impact a company’s venture opportunities and business practices. A poor business credit score may have negative consequences, including:

• Higher interest rates and fees: Business credit scores are a key factor in loan applications, influencing how much they’ll lend and the rates and terms they’ll offer. Low credit scores restrict loan amounts and credit lines, forcing reliance on costly, short-term loans.
• Difficulty attracting investors and executive talent: Top-tier investors and executives may avoid companies with poor financial management or credit histories. Wary of financial instability, potential partners may choose competitors with stronger credit profiles instead.
• Strained supplier relationships: Suppliers may also check a business’s credit report to decide whether to extend trade credit or negotiate payment terms. In the event of a poor score, they may deny payment terms, requiring upfront payments and limiting cash flow flexibility.
• Disqualification from big contracts: Weak business credit can exclude companies from lucrative projects, like government bids, as organizations may be wary of financial instability.

In the long run, by limiting access to affordable financing and other opportunities, poor business credit can hinder operations and growth. Meanwhile, building and maintaining good business credit can lead to longer vendor payment terms and more favorable loan rates—opening doors to more financial success.

Personal vs. Business Credit Scores

Comparing personal credit scores to business credit scores often creates a lot of confusion and misunderstanding around business credit. To clarify, here are the key differences between the two types of scores:

• Identification tied to credit: Personal credit is linked to Social Security Number (SSN) while business credit is connected to Employer Identification Number (EIN) or Tax ID Number. Each business with its own EIN can have a separate credit profile.
• Credit reporting agencies: Personal credit is reported by Equifax, Experian, and TransUnion. For business credit, the three major business credit bureaus are Dun & Bradstreet, Equifax, and Experian.
• Scoring range: Personal credit scores typically range from 300 to 850 across all agencies, while business credit scores usually fall between 1 and 100, with variations depending on the agency and scoring criteria.
• Scoring differences: Personal credit often uses a single score, typically FICO, while business credit varies across commercial credit bureaus. Both rely on payment history, but business credit scores depend heavily on trade references. If vendors don’t report payments to credit bureaus, those transactions won’t impact your business credit score.

Clients may expect business credit scores to provide the same level of insight as personal scores, but the reality is that they are often more limited in scope. Business credit scores are overall generally simpler, with fewer variables, and are often easier to improve than personal credit scores. 

Unfortunately, because they lack the comprehensive detail found in personal credit scores, this means business credit scores on their own do not always provide a clear picture of a business's creditworthiness. At Business Screen, we aim to bridge this gap by helping our clients understand these differences and setting realistic expectations for what business credit scores can and cannot reveal.

How to Check a Business’s Credit Score

The process to check a company’s credit score is generally straightforward and easy as long as an established and reliable reporting agency is used. Use our checklist below for a comprehensive walkthrough of the process. 

1. Gather business information. Collect essential details such as the business name, address, and EIN.
2. Choose a credit reporting agency. Besides the three major credit reporting agencies, Dun & Bradstreet, Equifax, and Experian, other reputable third-party service providers like Business Screen offer business credit reports.
3. Request the credit report. Submit a request for the business credit report through your agency’s website or customer service.
4. Review the report. Carefully examine the report for key details such as credit score, payment history, and any outstanding debts.
5. Verify accuracy. Ensure all information is accurate by cross-referencing with the business's records and financial statements.
6. Monitor regularly. Regularly check the business credit score to stay informed about any changes or updates.

Check a Business’s Credit Score with Business Screen

A business’s credit score is just one aspect of its overall profile and, while important, does not provide the complete picture of a company. That’s why Business Screen goes beyond the basics, offering a comprehensive suite of business background checks that fill in the gaps left by traditional credit reports. Our services include detailed analyses of legal history, operational practices, and leadership, providing a more holistic view of a business. 

With Business Screen, you can trust that you're getting the most complete and accurate picture of any business you're considering working with. Contact us today to gain a deeper understanding of your prospective business partners. Our expert services ensure you get the most accurate and comprehensive business credit information available with a 48-hour average turnaround time.

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