What is a Business Credit Score?

(This is a guest post written by our partner Tillful. It is meant to be educational content, not financial advice. Payability never checks credit scores (business or personal) as approval is based on eCommerce account health and sales performance. So there are absolutely no credit checks associated with applying to or working with Payability.)

Some funders use a business credit score to determine whether a company can get business financing in the form of bank loans, cash advances, lines of credit, and credit cards. Ready access to business financing helps a business navigate growth by covering expenses and investments such as payroll, equipment upgrades, and business expansion. Even business insurance rates are influenced by your company’s credit score.

The business credit score is a number that helps lenders determine the financial risk they take when giving you a loan. Maintaining a high credit score can give your business a competitive edge and provide you with better financing prospects.

Read on to learn more about why everything your parents told you about credit scores is outdated, and how modern technology has enabled a much better scoring mechanism.

What is a Good Business Credit Score and Why is it Important?

Business credit scores use various scales. A common one used by leading companies like Tillful range on a scale of zero to 100, with zero signifying high risk and 100 signifying low risk. In order to qualify for funding, most lenders require a business to hold a minimum score of 75. A healthy business score of more than 80 will enable you to secure better funding opportunities and on more favorable terms.

Even government lenders like the Small Business Administration (SBA) use the business credit score in determining access and pricing of credit terms. While all lending institutions use a number of data points in their underwriting, the credit score is often the very first criteria they look at, which makes maintaining a high score important to even get considered for a loan.

Once a lending institution has decided to extend an offer to you, your credit score influences the amount of a loan, the interest rate, the duration of the loan. 

As mentioned in the above disclaimer, Payability does not check credit scores. There are never any credit checks associated with applying to or working with Payability as we use data from your eCommerce platform(s) to underwrite customers.

What Factors Determine a Business Credit Score?

For business owners, keeping track of your credit score may seem daunting, and separating personal credit and business profile may be a challenge at first. But, rest assured,  knowing which factors make up your business credit score will make it easier for you to know what to focus on. Although each company that produces credit scores uses a different blend of input data, there is a wide degree of overlap.

For example, Experian Intelliscore Plus is calculated based on the business industry risk, company’s size and age, credit utilization, and payment history. Delinquent or late payments will count against you. Any public record on your business such as bankruptcy and other court judgments will also be considered.

Therefore, it is good practice for business owners to stay current with business (and personal) credit payments, ensure bills and vendors are paid on time, and keep business and personal lines of credit separate. These habits can take you a long way in keeping a strong credit score.

What are Shortcomings of Traditional Business Credit Reporting Bureaus?

Dun & Bradstreet (D&B), Experian, and Equifax are the three largest credit bureaus. But how effectively do they evaluate a company’s true credit risk?

While the credit reports published by these bureaus contain valuable information, there are some shortcomings of traditional business credit scores that can adversely impact the credit score of businesses. These shortcomings include incorrect information, incomplete data and out-of-date information:

  • Incorrect information: Past payment experiences between a business and a vendor, known as trade references, get reported to credit bureaus. However, those reports can contain errors that become a part of a company’s credit file.
  • Incomplete data: Most business-to-business activity never gets recorded in the database of big credit agencies, since they only receive trade references from a small list of companies. This can negatively affect small businesses as they may appear to have far less credit history than they in fact have.
  • Out-of-date information: Fast paced business environments means a higher turnover of information, rendering information held by credit bureaus as obsolete more quickly. However, credit bureaus still rely on past data to measure real-time credit risk. For example, the rapid shift in economic climate as a result of COVID-19 shows just how easily old data can fail to represent present conditions.

A Much Better Way to Obtain and Improve Your Business Credit Score

Since traditional business credit scores do not always paint the most accurate picture, it makes perfect sense to use a modern credit scoring company such as Tillful that is based on real-time transaction data from bank and credit card accounts.

Tillful’s machine learning based credit model accurately assesses business credit scores by finding patterns in cash flow data. In addition to traditional factors, such as payment history, the model considers cash flow patterns which include:

  • Increasing or decreasing trend in your cash balance
  • Irregularities in inflow and outflow
  • Credit utilization trends
  • Usage of overdraft facilities
  • Payment delinquency
  • Other factors

As a result, your Tillful score is a real-time reflection of your business’s financial health. In order to get the most holistic view of your company’s financial position, you are advised to link as many of your bank and credit accounts to Tillful.

One of the best things about Tillful is that there is no charge to get your score. There are no “hard inquiries” that count against your score. Unlike traditional credit bureaus that charge you high fees and operate in secrecy, Tillful is free to use, and transparent in how it determines your score. They even provide tips and advice on how to improve your score, and then use your score to pre-approve you with their lending partners.

Your business credit score is often the first impression that lenders have of your company. Make it a good one.

Pro Tip: Many alternative funding solutions like Payability are able to approve businesses based on factors completely outside of business or personal credit scores. If you run an eCommerce business on platforms such as Amazon, Shopify, Walmart, Newegg, or various others, you may qualify for accelerated daily payouts or a capital advance based on your account health and sales performance – no credit checks.

Ken So
Ken So is the co-founder and CEO of Tillful, a service that uses its fast, free, and transparent business credit scoring service to pre-approve companies for credit offers from lending partners.

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