Understanding Your Business Credit Score


Jeffrey Bumbales

No matter what kind of business you own, you’re bound to be affected by your business credit score at some point. Much like your personal credit score, the credit of your business can impact your ability to get funding, your ability to secure product, and even your ability to expand into other locations in certain cases.

Even if you frequently monitor your personal credit score and understand how credit works, business credit can be a pretty unique beast on its own.

We’ve explored the impact of bad business credit in previous articles, but if you’re looking to get a better understanding of how business credit works and what it can do for your business going forward, we’ve got the information you need right here:

What is a business credit score?

Let’s start at the top. Much like personal credit, a business credit score is a number that represents a company’s ability to pay back its debts. A number of factors can go into how this score is calculated (which we’ll explore in more detail later on), and each business’s credit score is tracked by the company’s name, address, and either their federal tax identification number (FIN) or their employer identification number (EIN), similar to how a private citizen’s credit is tracked via their social security numbers.

How is a business credit score calculated?

Business credit is calculated using a number of factors, primarily relating to the financial history of your business and its ability/willingness to pay back outstanding debts. A few of the most common and heavily weighted factors in this decision include:

  • Credit utilization ratio: how much credit your business has available to it (through business lines of credit, loans, etc.)
  • Payment history: how many payments your business has successfully made on time to its debtors, whether for tax payments, property rent, outstanding loans, and so on
  • Length of credit history: how long your business has been operating as an independent financial entity
  • Outstanding debts: any debts that your company is still actively working to pay off
  • Industry risk: the typical success rate and financial health of similar businesses in the same industry

Many more factors can have an impact in determining a business credit score, but these are arguably the most important.

How can my credit score affect me?

Good credit is ideal for businesses the same way it’s ideal for individual citizens. A higher business credit score gives you better opportunities when you apply for small business financing. This means qualifying for larger funding amounts and receiving better rates and terms.

Hopefully, with this advice in mind, your future business financial planning will be a little easier—or at the very least, done with more understanding of how your credit score may be affected.