LEARNING CENTER: For Small Businesses

Did You Know that business credit scores are different?

By John Ulzheimer

The next time you apply for business credit you may have to familiarize yourself with what (for you) may be a new concept: business credit scoring. And while you may have an understanding of consumer credit scoring, business credit scoring is quite different. There are three primary differences between the two varieties. They are:

Not Built To Predict the Same Thing

Consumer credit scores, such as the VantageScore credit score, are designed to predict the likelihood that a consumer applicant will go 90 days past due or worse during the 24 months after the scoring date. That is what’s formally referred to as the scoring model’s “performance definition” or stated design objective.

Business scoring models don’t care too much about whether or not you’re going to pay your bill on time. But they certainly care about whether or not the business will continue to pay its credit obligations. As such, they’re designed to predict things like whether or not you’re going to pay and how many days it will take you to pay.

Not Scaled the Same

Almost all consumer credit scores are scaled similarly, with a 300 to 850 score range. A higher score is always considered better than a lower score. Generally speaking, scores above 750 are considered to be strong and scores below 650 are considered to be poor.

Business credit scores don’t have a standard range. Some scores are displayed in single digits, some in double digits, some in triple and some are alphanumeric. And in a complete reversal of consumer credit scores, some business scores are reversed, so lower scores are better and higher scores indicate greater risk.

Don’t Consider the Same Information

Consumer credit scores consider information on your personal credit report, and that’s it. Nothing external to a credit report counts in your credit score. The same cannot be said for business scores. Business scores can take into account information from your application, your personal credit report, your company’s business credit report, and public record sources.

Thankfully, you don’t have to be an expert in business scoring to know how to earn and maintain high scores, or low scores, depending on how they’re scaled. If your business pays its bills on time, is in a reasonable amount of debt, has good cash flow and decent reserves, and has been around for at least several years, then its business score will likely be strong.

If your business is new, has an excessive amount of debt, a record of missing payments, and inconsistent cash flow, then its score won’t be as good. And if your business’s score is poor, then the same drawbacks exist as those who have poor consumer credit scores. Poor scores, regardless of the type, will result in fewer financing options, lower credit lines, higher interest rates, and more restrictive terms. And if your business’s scores are too low, then an outright denial of credit is a real possibility.

Disclaimer: The views and opinions expressed in this article are those of the author, John Ulzheimer, and do not necessarily reflect the official policy or position of VantageScore Solutions, LLC.


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