Business Credit Score 101: A Layman’s Guide

Do you run one of the 30+ million small businesses in the US? If so, there is a better than average chance that you also maintain a business bank account and at least one business credit card.

If that’s the case, then you also have a business credit score. Did you just find yourself blinking at the screen and asking, “What’s a business credit score?”

Don’t feel bad about it. Anyone who’s ever taken out a loan or gotten a credit card knows about their consumer credit score. Business credit scores get a lot less attention in the media.

So, keep reading and we’ll give you the layman’s guide to how credit scores work for your business.

What Is A Business Credit Score?

Despite it’s under the radar status, a business credit score doesn’t diverge that much from a personals credit score. In essence, it’s a number that tells banks, vendors, or other lenders whether your business is likely to pay that credit back.

Where it does differ from personal credit scores is in the number itself. Personal or consumer credit scores typically start at 300 and go up from there to 850. A business score starts at 0 and goes up from there to a max score of 100.

In both cases, though, the higher the score, the more creditworthy you appear to lenders.

What Affects The Score?

Here’s the good news. As a general rule, the business score only includes accounts held by your business.

So, if your business has a Mastercard in good standing with a solid payment history, it’ll improve your score. If your business also holds other reporting accounts, such as loans, those get folded into your overall score.

Why Does It Matter?

Almost every business hits a point where it needs more capital than it has on hand. Maybe you need extra money for expansion. Maybe a key piece of equipment died unexpectedly and you need a replacement.

Your business score will often determine whether you get a loan, as well as what kind of interest rate you’ll pay. A high score will get you great terms. A shaky score can leave you saddled with a bad interest rate.

If your business went through a rough patch and missed some payments, you may find you can’t secure a credit line through traditional lenders. In those situations, though, you can look for a bad credit business loan.

Parting Thoughts On Business Credit Score Basics

A business credit score works in essentially the same way as a personal credit score.

Credit bureaus look at what accounts the business maintains. It passes the information that lenders report through an algorithm. Then, they issue a score based on that information.

Fortunately, also like a consumer credit score, you can improve that overall score. Staying on top of payments and lowering your debt ratio will increase that score over time.

Craving more entrepreneurial advice? Take a look at some of our other entrepreneur-focused articles.