You are probably familiar with your personal credit report and score, but business credit might be a mystery to you. In this blogpost, I will try to demystify it and give you some useful tips along the way..
Credit Reporting Agencies
Just like personal credit, there are several credit bureaus that monitor business credit. The four most well-known are:
- Dun and Bradstreet
- Experian business
- Equifax business
- SBSS
Depending on the industry and funding needs, different bureaus will play an important role in determining the likelihood of getting a loan, creating relationships with new vendors, or bidding on a government contract. For instance, vendors and government agencies tend to look at Dun and Bradstreet to determine the business vitality, while loans that require SBA backing, tend to utilize the SBSS score modal instead.
What is a Paydex score?
A Paydex score is to business credit what a FICO score is to personal credit. It is a modal developed by Dun and Bradstreet to summarize your credit risks for vendors and creditors. While both FICO and Paydex calculate risks based on payment history, debt usage, age of debt, and so on, business credit also depends on business age, size, and industry. A FICO score ranges from 300-850 and Paydex ranges from 1-100. To be considered a low risk borrower, you must have a Paydex score of at least 80.
Where can I check my business credit?
While federal law requires that a free personal credit report be provided to consumers once a year upon request, business credit is more challenging to come by. You can get a basic report through D&B’s iUpdate service free of charge, but in order to find out your Paydex score, you will have to pay for their more advanced “Credit Evaluator Plus” option. Another valuable resource is Nav.com. They will provide you with your Experian and Paydex scores for free. In addition, Nav.com only charges a small, monthly fee, if you want detailed reports and their premium service.
How much does a good business credit score matter?
Maintaining a good business credit score is especially important if you are planning to bid for a government contract or apply for an SBA loan. Starting your business credit journey early will help you avoid difficulties later on. It is no fun finding yourself eligible for a government contract when the only thing standing in the way is an underdeveloped business profile. Starting early gives you the time to develop it. Moreover, starting early gives you the flexibility to choose your vendors in a way that will reflect positively on your business. Keep in mind that not all vendors automatically report your tradelines and choosing the ones that do can greatly enhance your business profile.
Does my personal credit score affect my business?
The short answer is, in most cases, yes. You can maintain a high score with most business bureaus, but SBSS will consider your personal credit as well. Moreover, most lending institutions will require a personal guarantor from one of the owners for lending purposes and will rely heavily on their personal score. In other words, while business credit is vital, it is also important to maintain a good personal score to qualify for most financing options.
Takeaway and How to Start
Business credit does exist, and it matters in the long run. But remember that business credit is not the whole story. In order to appear attractive to a lender, you need to have both solid business credit and a good personal credit.
Are you a new business in need of financing? Let us help you!
