Experian, Equifax, and Dun & Bradstreet (D&B) are the top three credit bureaus in the U.S. that collect information regarding small businesses and assign them risk-level scores. These scores are used by potential lenders and creditors to determine the likelihood that your business will default on its payment obligations. Note that while FICO offers a specific scoring service, it is not a credit bureau itself, but rather utilizes data from established credit bureaus. This article focuses specifically on Experian business credit scores.
Experian Score Range Explained
Experian’s business scoring model, called Intelliscore Plus (SM), aggregates information from thousands of sources on a daily basis. The information is fed into an algorithm that uses hundreds of variables to analyze that information and ultimately assign each business a credit score based on its risk levels.
The lower the score, the higher the risk to the lender of borrower default. Experian business credit scores range from 1 to 100, and correspond to risk levels as follows:
1 to 10 = High Risk
11 to 25 = Medium to High Risk
26 to 50 = Medium Risk
51 to 75 = Low to Medium Risk
76 to 100 = Low Risk
As you can see, there is no single score that is considered “good.” Rather, each business exists on a scale and it is up to each bank, credit card company, supplier, and vendor to decide whether to lend your business money, extend it credit, and what interest rates to charge based on your score. (By the way, according to Experian, the average business credit score is 62, which is not even in the lowest risk quintile. I hope some of the readers find that statistic reassuring. I’m just happy I had the opportunity to use the word quintile in a sentence]).
Data that Experian Uses to Arrive at Your Business Credit Score
While the exact parameters regarding the data Experian uses to arrive at your score are proprietary and not known to the public, the company advises the scores are based on a number of factors that fall under one of three broad categories: credit information, public record information, and financial information. Additionally, Experian utilizes marketing databases to gather comprehensive data that contributes to evaluating the risk associated with a business’s payment behavior.
Credit information
This includes historical data regarding your payment history with suppliers and creditors, the frequency of late payments (if any), and how much of your available credit you utilized. It also takes into account the volume of transactions, and trends over time.
Public record information
This includes information that can negatively affect your business’s profit margins or the value of its assets, that Experian obtained from publicly available sources rather than what was reported to it by your creditors, suppliers, or vendors. Some examples would include court judgments against your business, past bankruptcy filings, existing mortgage loans or other liens that encumber your business’s property or assets.
Demographic information
Demographic information includes factors such as the size of your business, how long it has been running, and even overall trends in the industry your business operates in to determine how they are likely to affect your future profits and losses.
Best Practices for Maintaining a Good Experian Business Credit Score
The most important factor of all is to always pay your vendors on time. Regularly check your business credit score to ensure there are no inaccuracies and to understand your creditworthiness. Remember, trends over time are used in calculating your scores, so just a few late payments can negatively affect your score long down the line.
Keep your credit utilization rate low. A low rate demonstrates that you are responsible with your finances, and can be trusted to manage your debt levels.
Try to use vendors and suppliers that report their customer transaction information to Experian whenever possible. To the extent that all your balances and invoices are paid on time, Experian uses the number and consistency of transactions reported in your business credit report to determine that you are an established, productive, and creditworthy business.
Don’t take on secured loans unless absolutely necessary. This is because in order to secure their loan against your assets, the lender will have to submit a UCC lien, which is basically a notice to the public that they get dibs on the assets you secured the loan with in case you default on the loan. Experian will lower your score each time one of these filings is recorded against one of your assets.
Always keep your personal and business accounts separate.
How to Find out Your Business’s Experian Credit Score
Awareness of your business credit score and business credit reports can be a very helpful tool for making financial projections regarding how much credit you will be able to access and at what rates. You can also show copies of your credit report to potential investors and use your high score to instill confidence in them that you are someone who knows how to run your business profitably and responsibly.
It is also recommended to regularly check your report so that you can report inaccuracies or dispute negative information about your business that one of your vendors reported to Experian during a credit check.
To do this, you can make a one-time purchase of your business’s credit report (which will include your business credit score, as well as a copy of your business’s public records and payment summary trends), or by enrolling in one of their monthly or annual plans that include unlimited access to your score.
