Business Credit Score

What Is a Business Credit Score?

A business credit score is a number that demonstrates whether a company is a decent candidate to receive a loan or become a business customer. Credit scoring firms compute business credit scores, likewise called commercial credit scores, in view of a company's credit obligations and repayment chronicles with lenders and providers; any legal filings like expense liens, decisions, or liquidations; how long the company has worked; business type and size; and repayment performance relative to that of comparable companies.

Breaking Down Business Credit Score

To apply for a new line of credit to purchase equipment, one factor the lender would consider is the business' credit score. It would likewise take a gander at the business' revenue, profits, assets and liabilities, and the collateral value of the equipment it wanted to purchase with the loan proceeds. On account of a small business, the lender could check both the business' and proprietor's credit scores, since the personal and business finances of small business owners are frequently closely interlaced.

The three major business credit scoring firms are Equifax, Experian, and Dun and Bradstreet, and each utilizations a somewhat unique scoring method. Not at all like consumer credit scores that follow a standard scoring algorithm and reach from 300 to 850, business credit scores generally range from 0 to 100. No matter what the specific method utilized, a business will have a [good credit](/great credit) score in the event that it pays its bills on time, avoids legal difficulty, and doesn't cause too much debt.

Business Credit Score in real life

Imagine a scenario in which Company A was thinking about taking on Company B as a client and wanted to know the probability that Company B would pay its invoices in full and on time. No business maintains that should do hours and hours of work for a client, then not get compensated. Company A could check Company B's business credit score first, then consent to carry on with work provided that Company B's credit score showed that it had a strong history of paying its providers. Company A might purchase a subscription service to monitor Company B's credit score on a continuous basis. In the event that the score dropped essentially, Company A could lower its risk by suspending business with Company B or requiring payment in advance.

Likewise, Company C, a wholesale provider, should check the business credit score of Company D, a manufacturer, before transportation out a load of goods with a invoice giving Company D 30 days to pay. In the event that Company D has a high credit score, this arrangement would appear to be low-risk, however assuming it has a low credit score, Company C might need to ask for payment front and center, before transportation any goods.