The Ultimate Guide to Finally Understanding Business Credit Ratings in 2024

The Ultimate Guide to Finally Understanding Business Credit Ratings in 2024

The Ultimate Guide to Finally Understanding Business Credit Ratings in 2024

Ever found yourself scratching your head over business credit ratings? Well, you’re not alone. Navigating the world of credit scores can feel like trying to crack a secret code. But don’t worry: This article explains the nitty-gritty of business credit ratings. Get ready for a guide that speaks your language, with tips, hacks, and real-talk to finally make sense of it all. Whether you’re a new small business owner or a seasoned entrepreneur, it’s about to get a whole lot clearer.

What Is a Business Credit Rating?

A business credit rating, also known as a business credit score, is a number that represents your business’s creditworthiness, or how reliably you pay back what you owe. Similar to personal credit scores, which reflect an individual’s credit history and ability to manage debt, a business credit rating assesses a company’s credit risk for potential lenders and creditors. This rating is based on the business’s financial behavior, payment history, and other relevant financial factors.

Business credit ratings are provided by credit reporting agencies such as Dun & Bradstreet (D&B), Experian, and Equifax. Lenders, suppliers, and other entities may use these ratings to evaluate how risky it would be to do business with your company. 

Maintaining a positive business credit rating is crucial for getting favorable loan terms, negotiating with suppliers, and establishing trust with business partners. Businesses can monitor and improve their credit ratings by managing their finances responsibly and ensuring timely payments on credit obligations.

If you’re new to business credit, learn how to establish business credit in this guide from Nav’s experts.

What Determines Your Business Credit Rating?

There are a few factors that contribute to your business credit profile, like:

  • Payment history: On-time payments on credit accounts and loans positively impact a business’s credit rating, while late payments or defaults can have a negative effect.
  • Credit utilization: The ratio of a business’s outstanding credit balances to its available credit can influence the credit rating. Lower debt utilization is generally viewed more favorably.
  • Credit history length: A longer and positive credit history can contribute to a higher credit rating, demonstrating a business’s ability to manage business finances responsibly over time.
  • Public records: Negative public records, like delinquencies, bankruptcies or tax liens, can significantly impact a business’s credit rating.
  • Industry risk: The industry in which a business operates can affect its credit rating. Some industries, like tobacco and firearms, are considered riskier than others, and this is taken into account in the rating.

Regularly assessing and addressing these factors can positively impact your creditworthiness, which can then impact your ability to secure favorable terms and interest rates on small business loans and business credit cards.

What Is the Business Credit Rating Scale?

Business credit ratings are typically written out in a scale that helps lenders and creditors quickly assess the creditworthiness of a company. Different credit reporting agencies may use slightly different business credit score ranges, but a commonly used scale is the one provided by D&B. 

Here’s an overview of the Dun & Bradstreet business credit rating scale, or the Dun & Bradstreet PAYDEX Score:

This is a unique scoring system used by Dun & Bradstreet, ranging from 0 to 100. A higher PAYDEX score indicates a better payment performance. For example:

  • 100: Payment made within terms
  • 80: Payment made 30 days beyond terms
  • 60: Payment made 60 days beyond terms

Find out what is a good business credit score in this article.

It’s important to note that each credit reporting agency has its own scales and scoring systems. So your Equifax business credit may look different than your Experian business credit score. These scales aim to provide a quick and standardized way for businesses and creditors to evaluate the credit risk associated with a particular company. 

Lenders are more likely to want to work with low risk businesses than high risk businesses. So understanding your business’s credit rating and taking steps to maintain or improve it can have significant implications for your ability to get financing and credit accounts. 

How to Check Your Business Credit Rating

Knowing what they are is one thing, but you also need to know how to check business credit ratings. There are a few options. First, you can get limited access to your business credit reports directly from the credit bureaus. You’ll head to each business credit bureau’s website and fill out the required forms. You’ll often be required to sign up for a free or paid account. 

But there’s a better way: Nav Prime is the easiest option for managing your business credit reports. Rather than piecemealing your separate reports together, Nav Prime gives you Detailed Credit Reports in one place, for one (smaller) fee. You can add on your FICO SBSS score for an additional cost as well. Using Nav costs much less than checking your reports individually and saves you a lot of time.

Even better: Your payment to Nav Prime and your regular usage of the Nav Prime Card* act as two business tradelines that get reported to the major business credit bureaus. So your on-time payments can work for you to help build your business credit history.

How to Improve Your Business Credit Standing

Getting solid business credit under your belt is crucial for accessing good financing terms and building trust with creditors. 

Here are steps you can take to enhance your business credit:

Get a DUNS number

A DUNS number is how the business credit bureau Dun & Bradstreet identifies you. Establishing business tradelines (like the two built into Nav Prime) automatically creates your business’s DUNS number. Otherwise, you’ll want to request your free DUNS number from D&B.

Make timely payments

One of the most significant factors influencing your business credit rating is your payment history. Make sure that you make all your payments, including those for credit cards and business tradelines, and make sure they’re on time. Early payments are even better. 

Late payments can have a negative impact on your credit standing. Set up reminders or automated payments to avoid missing due dates and establish a reliable payment history.

Diversify and manage credit responsibly

Diversify your sources of credit and manage them responsibly. Utilize a mix of credit types, like trade credit, term loans, and business credit cards. Also, try to avoid maxing out your credit limits since a lower credit utilization ratio is viewed more favorably. Additionally, only apply for credit when necessary to minimize the number of inquiries on your credit report. 

Building a positive credit history over time by responsibly managing different credit accounts can contribute to an improved credit standing.

Regularly managing your business credit report and addressing any inaccuracies will not only enhance your credit standing but also position your business for better financial opportunities in the long run.

When Business Credit Checks Are Required

Business credit checks are required in various situations to assess the creditworthiness and financial stability of your business. Here are some common scenarios when business credit checks are necessary:

  • Applying for business loans or credit: When your business applies for a loan or a line of credit, lenders typically conduct a business credit check to evaluate the risk associated with lending to you. The credit check helps lenders look into your business’s repayment history, outstanding debts, and overall creditworthiness.
  • Opening business credit accounts: When you try to establish credit accounts with suppliers, vendors, or other partners, those entities might conduct a business credit check. This helps them determine the level of risk involved in extending credit terms.
  • Leasing commercial real estate: Landlords and property management companies often require a business credit check if your company applies to lease commercial space. This helps property owners assess the financial stability of your business and its ability to meet lease obligations.
  • Entering into business contracts: In certain contractual agreements, especially those involving long-term commitments or significant financial transactions, business partnerships might pull credit reports to gauge the financial health and reliability of the contracting party.
  • Government contracts and bidding: When your business bids for government contracts or other large projects, the contracting entity might look at your business credit as part of the vetting process. This is to make sure that your business will be able to fulfill the contract.
  • Insurance premiums: Some insurance providers may use business credit information as a factor in determining insurance rates. A low business credit risk score may result in lower insurance costs.
  • Mergers and acquisitions: The acquiring company might conduct a business credit check on the target company to assess its financial health, liabilities, and overall risk.

How Nav Can Help

Nav Prime is the simplest tool for managing and building your business credit. You’ll get two business tradelines included — one with your monthly Nav Prime payment and another with your regular use of the Nav Prime Card. These tradelines help you build your business credit without having to sign up for net-30 vendors that you don’t need.

FAQs

*DISCLAIMER: Nav Technologies, Inc. is a financial technology company and not a bank. Banking services provided by Blue Ridge Bank, N.A., and Thread Bank, Members FDIC. The Nav Visa® Business Debit Card is issued by Blue Ridge Bank, N.A., and the Nav Prime Charge Card is issued by Thread Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa cards are accepted. Your funds are FDIC-insured up to $250,000 through Blue Ridge Bank, N.A., Member FDIC.

This article was originally written on December 20, 2023 and updated on February 12, 2024.

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