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Business Credit Scores

A business credit score is a numerical representation of a company’s creditworthiness. They are used by credit providers to gain insight into the financial stability of a company. This helps creditors make informed decisions about the terms and conditions they offer.

To effectively use business credit scores in your decision-making process, it’s important to understand how they work.

What is a Business Credit Score?

A business credit score is predictive of a company’s likelihood to have a severe payment delinquency in the next 6 months. The score is calculated using data from credit reporting agencies, public records, and financial institutions.

The factors that influence a company’s credit score include:

  • Payment history: Record of payments made, and if they were paid on time.
  • Credit utilization: The percentage of available credit a business is currently using.
  • Length of credit history: How long a company has maintained credit accounts.
  • Types of credit: This can include trade credit, loans, credit cards, and lines of credit.
  • Public records and inquiries: Bankruptcies, tax liens, and judgments against the company.

Business Credit Score Range

A business credit score is evaluated on one of two scales: 1 to 100, or 101 to 992. Higher scores indicate a good credit track record and a lower risk of default. However, the specific range and scoring model may vary depending on the credit reporting agency. Below is a general breakdown of score ranges and their implications:

  • 800-899: Excellent credit history; very low risk
  • 700-799: Stable credit history; low risk
  • 500-699: Credit history includes mild issues such as a few late payments; moderate risk
  • 300-499: Credit history of late payments/financial difficulties; high risk
  • 0-300: High likelihood of defaulting on financial obligations; very high risk

How Often Are Business Credit Scores Updated?

Some agencies update their data every two weeks, but most credit bureaus update once a month. The timeline is typically contingent on when creditors report information to the bureau. Creditors don’t always report this information at the same time each month — or to the same credit bureaus. As a result, business credit scores may fluctuate depending on when they are pulled, making it difficult to monitor business credit risk accurately.

Why Business Credit Scores Matter

Business credit scores matter because they play a critical role in assessing creditworthiness and determining credit limits. They also play a key role in evaluating potential business partners and suppliers.

By understanding and utilizing business credit scores, you can make well-informed decisions that protect your business, foster strong financial relationships, and contribute to your overall success.

Assessing Creditworthiness

Business credit scores play a crucial role in assessing the creditworthiness of your customers. By reviewing a company’s credit score, you can gain valuable insights into their financial stability and payment behavior.

A higher credit score typically indicates a lower risk of payment delinquency, while a lower score suggests a higher risk. This information helps you make informed decisions about extending lines of credit and setting appropriate terms and conditions for your customers.

Determining Credit Terms

Business credit scores also help in determining credit limits for your customers. Higher credit scores generally indicate reliability, meaning they are less likely to default on their financial obligations. As a result, you may offer these customers more favorable payment terms and higher credit limits.

Conversely, customers with lower credit scores may receive less favorable payment terms. This includes a lower credit limit to mitigate the risk associated with doing business with them. By using business credit scores as a benchmark, you can create tailored credit solutions that meet the needs of both your business and your customers.

Evaluating Potential Business Partners and Suppliers

Business credit scores can also be used when evaluating potential business partners and suppliers. A strong credit score can indicate that a company is a reliable partner or supplier. On the other hand, a low credit score may raise concerns about their financial health and reliability. Considering the credit scores of potential business partners can help mitigate supply chain risk.

Anticipate Changes to Business Credit Scores

With Moody’s Analytics Pulse, creditors don’t need to worry about being blindsided by risk. Use our free automated reporting tools to receive email notifications as soon as there’s a change to your customer’s business credit profile.

Moody’s Analytics Pulse provides insight others can’t. Our Spend Data provides an earlier warning about credit risk than traditional analyses that rely on financial reporting or payment behavior. Schedule a demo with one of our credit experts to learn more today.