Business Credit Score Revealed

Let’s explore the world of ‘Business Credit’ Scores to Uncover the Mystery. 

There are more national business credit bureaus than consumer credit bureaus, and the range of business credit scores is broader, with many influenced by factors that most small business owners aren’t even aware of. While many entrepreneurs focus on FICO and may have some knowledge of business credit, how much do they really understand? We’ll delve into the details and uncover the mysteries behind business credit. 

Can your business be dependent on business credit? Absolutely, and it plays a crucial role in securing the right loan and funding. For smaller businesses, personal credit often carries equal or even greater importance. Business credit spans a wide spectrum—even the government and publicly traded companies have credit ratings. Larger organizations tend to rely more heavily on their business credit ratings, while smaller, family-run businesses may not see as much dependence. In the world of credit, a business’s size and reputation can significantly influence its creditworthiness.

Business Credit Tradelines

For businesses, there are two types of credit tradelines: financial and vendor tradelines.

• Financial Tradelines: These are extensions of credit from banks or financing companies, such as credit lines for business, business loans, commercial credit cards, or equipment financing.
• Vendor Tradelines: Also known as merchant, supplier, or trade credit lines, vendor tradelines are reports from merchants or suppliers to business credit bureaus about a company’s payment history. For example, an office supply company extending net-30 terms to a customer for office supplies.

Some business credit bureaus collect only financial tradelines, others only vendor tradelines, and some collect both. These bureaus combine tradeline data with additional company information to generate a business credit score or assess the creditworthiness of your business. Some also include details about the company’s principals (owners or individuals controlling the company). Vendor tradelines for those vendors who report to one, any or all to these reporting agencies is also important. Some vendors don’t report and some do. There’s negative and positive to both for both ends. 

The importance of each tradeline type depends on your goals. Many business will never have tradelines for their business if vendors don’t report. Everything that’s reported to Dun and Bradstreet can be self-reported. For securing net-30 terms with a supplier, your payment history on similar vendor tradelines is key. Comparable credit is as important. If all your previous credit payment maximum credit line were for example only $20K and all of a sudden, you’re looking to open a credit line for $100k, that you lack comparable credit. For obtaining a loan or credit card, financial tradelines are likely more critical. 

Business Credit Bureaus and Scores

While there are only three major consumer credit bureaus, there are several business credit bureaus. Here are some major national business credit bureaus and the scores they provide:

PayNet

PayNet is a leading credit bureau focused on financial tradelines. The primary score used by lenders is the PayNet MasterScore, which is calculated using the largest database of business loans and term leases in the nation. This score is mainly used for lending and leasing decisions by financial institutions. Acquired by Equifax in 2019, PayNet operates as an independent division of Equifax. If you’re going to get approved for leasing you will be scored through here if you have had any Paynet Score.

– Score Range: 500 to 800 (higher is better). A company’s score reports as “null” if no credit history is available.

PayNet MasterScore V2 Example Ranges:

v  700 – 800: Low Risk (1.1% or less bad rate)

v  660 – 699: Low to Medium Risk

v  630 – 659: Medium Risk (4.1% to 9.0% bad rate)

v  590 – 629: Medium to High Risk (9.1% to 21% bad rate)

v  500 – 589: High Risk (Greater than 21% bad rate)

Equifax

Equifax, a major consumer credit bureau, is also a leading business credit bureau offering multiple business credit scores. Two primary scores are the Equifax Business Delinquency Score, predicting the likelihood of severe delinquency on vendor accounts, and the Equifax Business Delinquency Financial Score, which focuses on financial accounts. These scores include both company principal and company credit information.

– Equifax Business Delinquency Financial Score Range: 101 to 650 (higher is better), or “0” for bankruptcy, and “null” if no credit history exists.

Equifax Score Ranges:

v  585 – 650: Low Risk (0.57% bad rate)

v  554 – 584: Low to Moderate Risk (0.98% bad rate)

v  465 – 553: Moderate Risk (3.93% bad rate)

v  299 – 464: Moderate to High Risk (21.2% bad rate)

v  101 – 298: High Risk (75.3% bad rate)

Dun & Bradstreet PAYDEX Score

Dun & Bradstreet (D&B) focuses on vendor tradelines, referred to as ‘Trade References’. These include on-time payments, early payments, and overdue debts. The PAYDEX Score is a dollar-weighted indicator of a business’s past payment performance, ranging from 1 to 100, with higher scores indicating a greater likelihood of timely payments.

PAYDEX is primarily used by vendors and suppliers to determine trade credit terms (e.g., net 30, net 60). A better score can result in more favorable terms, improving your company’s cash flow.

To generate a PAYDEX score, D&B considers trade references from up to 875 individual vendors, and your company typically needs about three vendor tradelines reported. If your vendor are not reporting, you’ll be limited to those who report. However, your UCC filings and other public information will be visible and not accounted for when Paydex score is determined.

PAYDEX Risk Levels:

v  High Risk (0-49): Payments more than 30 days late

v  Medium Risk (50-79): Payments 15 to 30 days late

v  Low Risk (80-100): Payments on time or early

PAYDEX Score Breakdown:

v  100: Payment comes 30 days before due date

v  80: Payment on due date

v  50: Payment 30 days after due date

v  1-19: Payment over 120 days after due date

Experian

Experian, a major national consumer credit bureau, also offers business credit scoring through Intelliscore Plus. This model uses over 800 company and owner data points from public records, personal credit files, and public filings. Although the exact scoring formula is proprietary, Experian provides general information on influencing factors. Many lenders for working capital, term loans, business loans and equipment financing review Experian Business Credit in addition to other reporting agencies they review prior to considering any offers of funding.

Intelliscore Plus Factors:

v  Payment History: The most crucial factor, emphasizing on-time payments.

v  Negative Factors: Includes accounts in collections, liens, judgments, bankruptcies, and payment trends.

v  Fiscal: Focuses on credit utilization and delinquent balances and inquiries.

Intelliscore Plus Range:

v  1 to 100 (higher is better).

v  Risk Levels:

v  Low Risk (76 – 100): 1.7% bad rate

v  Medium Risk (26 – 50): 10.0% bad rate

v  High Risk (1 – 10): 50.8% bad rate

Small Business Financial Exchange (SBFE)

The SBFE is a data exchange for small business credit information, established in 2001 and owned by small business lenders. SBFE members, such as banks and leasing companies, contribute data in exchange for access to credit reports generated by SBFE-certified vendors.

The SBFE collects data such as loan payments, business lease payment history, credit card payment history, and business identification information. Unlike other bureaus, SBFE does not calculate or provide credit scores. Instead, it shares data with vendors like Equifax, Experian, Dun & Bradstreet, and LexisNexis, who incorporate it into their business credit scores.

FICO Small Business Scoring Service Score (FICO SBSS Score)

FICO, known for its consumer credit models, also provides a business credit scoring model used by the Small Business Administration (SBA) for SBA 7(a) and Community Advantage loan decisions up to $350,000. The FICO SBSS Score is a hybrid score that combines personal and business credit information, making personal credit just as important as business credit when seeking SBA loans.

The FICO SBSS Score ranks applicants by their likelihood of timely payments and ranges from 0 to 300 (higher is better). A strong history of timely payments to lenders and suppliers will positively impact your company’s SBSS score.

– As of October 1, 2020, the minimum FICO SBSS score to pass the SBA’s pre-screen process was 155, but many lenders require a score between 160 to 165. If the score falls below 155, the loan application undergoes manual approval.

DataMerch:

DataMerch is a credit reporting agency that helps businesses mitigate risk by providing a database of companies with negative payment histories or defaults. Lenders and vendors can access this database to assess the risk of extending credit to a particular business. DataMerch focuses on ensuring that businesses have access to reliable data to make informed credit decisions, particularly in industries where default rates are higher.

Vendor Lease Police:

Vendor Lease Police is a specialized credit reporting agency that tracks and reports the payment behaviors of businesses with their suppliers through the lens of equipment financing lenders. It focuses on vendor relationships and helps businesses understand the creditworthiness of potential clients or partners. Vendor Police provides detailed reports on a company’s payment history, including any late payments or defaults, allowing vendors to make better decisions when extending trade credit.

So, what as a business owner to do? Can you control everything? Perhaps not, but mostly the trend if you pay your bill no one will bother you, however, circumstance in life always throws us a curve ball, but knowing what your business can do to improve the chance of getting the right loans is critical. Liberty Capital will always be there to make sure you’re well taken care of without the burden of being charges consulting fees.