Do You Know Your Business Credit Score?

Whether managing or repairing it, understand how it affects operations and the bottom line

(Illustration by Tony O. Champagne)

In the current economic environment, business owners understand that a good personal credit score is critical to their financial well-being. But what many neglect is their company’s business credit score. Inextricably linked to a company’s pecuniary health, the score can influence everything from loan interest rates to insurance premiums.

The business credit score offers an objective snapshot of how a company handles its financial responsibilities, as a personal credit score does for an individual. Also known as a commercial risk score, it includes a range of information from payment history and credit utilization to delinquencies, collections, bankruptcies, and judgments to even business age, industry risk, and number of employees. Dan Meder, vice president of marketing and product management for business information services at the global information services company Experian, says credit bureaus such as his use certain algorithms that examine key risk factors to express as a score the likelihood that a business will repay its debts.

Despite the business climate, Experian’s Business Benchmark Report, which offers a monthly analysis of small business health, shows that commercial credit scores have been on the rise. For the first quarter of 2010, scores increased by nearly 2%, suggesting a slight improvement in the ability of companies to meet payment obligations over the next 12 to 24 months.

But just how many business owners actually understand commercial credit scores? Many entrepreneurs don’t know about business credit ratings as a whole. “It’s not in the business psyche,” says Arlene Williams, executive vice president of Seaway Bank and Trust Co. (No. 8 on the BE Banks list with $385 million in assets). “A lot of businesses just aren’t aware they exist.”

“Many of the small businesses we work with have not developed a business credit score yet,” says Lesia Bates Moss, president of Seedco Financial , a national nonprofit community finance organization focused on lending to small businesses in traditionally underserved communities.

“Small business owners might think of their consumer credit report as their business credit report,” says Ross McKay, vice president of commercial information solutions for Equifax Inc., one of the leading consumer credit reporting agencies in the U.S. “But they need to understand that in many cases, there is a separate business credit report.”

Of course, lack of knowledge doesn’t exempt business owners from being rated.

When is the report established?
Companies can have a business credit score without even knowing it, notes Meder. Usually, as soon as businesses establish a relationship with banks and vendors that consistently report to credit bureaus, credit agencies begin to generate commercial reports about them.

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  • Laonia Hobbs

    In a deal to help out a close friend with bad credit and child support issues, I became a business owner. Not realizing the world that was manifesting infront of me and the responsibilities that would go along with it no doubt. I am partially clueless about taxes and I just learned I have a business credit score after reading this Black Enterprise article. I am now pondering on how to recreate myself through my dream of being an entrepranuer, my own boss, the bos. In addition for everyone I cut a check for, who prefers working for themselves with like minded people more or less. Thank you for the direction. I needed that information. The insight just took me in another direction as I am utilizing my blind faith.