A Brief Guide To Business Credit Reports

Maintaining a good business credit score is critical for any company interested in growing and scaling its business.

March 30, 2022

Maintaining a good business credit score is critical for any company interested in growing and scaling its business. Even if you depend on leveraging your personal credit at the beginning of your business journey, it’s not sustainable in the long-term.

What is a business credit score?

Just like how individuals have a personal credit score, companies have a business credit score. This score is calculated and maintained by three business credit bureaus:

  • Dun & Bradstreet (D&B)
  • Equifax
  • Experian

And they each have their own system for rating your business.

Dun & Bradstreet (D&B) uses a 100 point scoring system called PAYDEX. The PAYDEX score measures how often a company has paid their suppliers and vendors on time. If you’re doing business with a company that reports to D&B, your timely (or untimely) payments could be impacting your score.

Here’s a breakdown of the PAYDEX scoring scale:

  • 100: Payment comes 30 days sooner than terms
  • 90: Payment comes 20 days sooner than terms
  • 80: Payment comes on terms
  • 70: Payment comes 15 days beyond terms
  • 60: Payment comes 22 days beyond terms
  • 50: Payment comes 30 days beyond terms
  • 40: Payment comes 60 days beyond terms
  • 30: Payment comes 90 days beyond terms
  • 20: Payment comes 120 days beyond terms
  • 1 – 19: Payment comes over 120 days beyond terms

A score of 80 or higher is considered good and indicates that a business pays vendors/suppliers on time or before the payment due date. A PAYDEX score of 79 – 50 indicates that a business consistently pays their vendors/supplier 15 – 30 days late. A PAYDEX of 0 – 49 indicates that a business pays their vendors/suppliers at least 31 – 90 days late.

Businesses with a good PAYDEX score may be able to negotiate the best terms with vendors and suppliers.

D&B also calculates the following scores:

  • A delinquency score predicts if a business is most likely to pay their bills late or go bankrupt in the next 12 months.
  • A failure score predicts the likelihood that a business will go out of business and not pay its creditors in the next 12 months.
  • A supplier evaluation risk rating tries to predict the likelihood that a vendor will be unable to supply services or products in the next 12 months.

A D&B rating scores a business on its overall creditworthiness based on publicly available financial records.
Get your Dun & Bradstreet credit report here.

Equifax collects data from the Small Business Finance Exchange (SBFE) to calculate a business credit risk score on a scale from 101 to 992. A good score is 700 or higher. Lenders report payments to SBFE, and Equifax gleans the following information from their reports:

  1. number of delinquent accounts,
  2. charge offs,
  3. the age of accounts,
  4. credit utilization,
  5. and the number of employees in the company.

Equifax also calculates a payment index score which rates the company on the number of delinquent accounts and how long the delinquencies lasted over the previous 12 months. And then there is the business risk score which predicts how likely the company is to fail or go into bankruptcy in the next 12 months.

Here’s a breakdown of the Equifax payment index score:

  • 100-76 Low risk of delinquent or defaulted payment
  • 75–51: Low to medium risk of delinquent or defaulted payments
  • 50–26: Medium risk of delinquent or defaulted payments
  • 25–11: Medium to high risk of delinquent or defaulted payments
  • 10–1: High risk of delinquent or defaulted payments

Get your Equifax business credit report here.

Experian is a “catchall” business credit bureau because they collect data from lenders, vendors, banks and public records such as legal filings, bankruptcies, liens, and publicly available financial records. Like PAYDEX, they have a credit score range of 100 points, which breaks down as follows:

  • 0-15: High Risk
  • 6-30: Medium Risk
  • 31-80: Good Credit
  • 80-100: Excellent Credit

Experian also provides a financial stability risk rating which predicts the likelihood of a company going out of business in the next 12 months.

You can get a copy of your Experian business credit report here.

How To Build and Maintain Your Business Credit Score

If you want to establish a strong credit history for your business you must do the following:

  • Do business with vendors and suppliers who report to one or more of the business credit bureaus.
  • Pay your bills before they are due if possible and avoid late payments.
  • Ask your lenders if they report to Equifax or Experian. If you have an outstanding loan or revolving credit, you want to make sure that your timely payments are being reported.
  • Order a business credit report from each of the bureaus even if you don’t have an active credit account or vendors. You want to ensure that all of the information reported about your company is accurate.

Correct any inaccurate information on your business credit report immediately.

West Coast Franchise Law

If you have any questions about franchising, please contact the experienced franchise and business law attorneys at West Coast Franchise Law today at (206) 903-0401 to discuss your situation. Nate Riordan is a 2023 Franchise and Bankruptcy Super Lawyer with over 20 years expertise helping clients achieve their business goals.