Business credit scores incorporate payment history, available credit and other financial factors to measure the creditworthiness of a business. Dun…
Business credit scores incorporate payment history, available credit and other financial factors to measure the creditworthiness of a business. Dun & Bradstreet is a leading provider of business credit scores, so if you’ve ever applied for a business loan or line of credit, the lender might have checked your Dun & Bradstreet number to evaluate your company’s reliability and financial stability.
Since your D&B score can make or break your approval for a business loan, it’s important to understand what impacts your rating and, if necessary, find ways to improve it. Here’s a closer look at Dun & Bradstreet credit scoring and how it can play a role in your business’s access to financing and investments.
[Read: Best Small Business Loans.]
What is a Dun & Bradstreet Business Credit Score?
Similar to a personal credit score for your individual finances, a Dun & Bradstreet credit score indicates your business’s financial stability. D&B bases this rating on various factors, including a company’s size, assets, liabilities and owner’s equity.
The D&B Rating, which lenders or investors may review to determine a company’s credibility, is composed of two parts: the Rating Classification and the Composite Credit Appraisal.
— Rating Classification: This combination of letters and numbers indicates the size of a business based on its worth or equity. Ratings range from HH, which indicates a small business with a net worth of less than $5,000, to 5A, which represents businesses with a net worth of $50 million or more. Your business will only get a Rating Classification if you’ve supplied D&B with a current financial statement.
— Composite Credit Appraisal: This credit rating ranges from 1 to 4, with 1 being the best and 4 indicating that your business is a risky candidate for a loan. If you don’t submit financial statements to D&B, the best score your business can get is a 2.
Other Types of D&B Credit Scores
While the D&B Rating gives an overall picture of a company’s creditworthiness, D&B also generates a number of other types of business credit scores, including:
— D&B Paydex Score: This score is based primarily on your past payments to creditors. It ranges from 1 to 100, with 100 being the best. Scores from 0 to 49 suggest your company has a high risk of making late payments, 50 to 79 suggests moderate risk and 80 to 100 indicates low risk.
— D&B Delinquency Score: This score similarly suggests whether your company is at risk of making late payments or going bankrupt. It ranges from 1 to 5, with a 1 indicating a low chance for delinquency and 5 suggesting higher risk for missing payments.
— D&B Failure Score: This score also ranges from 1 to 5, but it indicates your business’s chance of experiencing financial stress — for instance, filing for bankruptcy — in the next year.
— D&B Supplier Evaluation Risk Rating: Rating businesses from 1 to 9, the SER Rating indicates whether a supplier might become inactive or close down in the next year. This rating is useful for suppliers and businesses that seek to join supply chains.
— Maximum Credit Recommendation: D&B can also make a recommendation about how much credit to extend to a business based on its size, industry and payment history.
— D&B Cyber Risk Rating: Finally, D&B also gives a Cyber Risk Rating to suggest how vulnerable suppliers are to cyberattacks.
[READ: Best Ways to Finance a Franchise]
Why Does Your Business Need a D&B Rating?
If you want access to credit to grow your business, building and maintaining a business credit score is crucial. A strong D&B rating suggests to lenders that your business is a reliable candidate for a loan, line of credit or credit card.
“Lenders use it to assess financial risk, so it truly is the lifeline of any small business,” says Brian Bond, senior vice president of Experian’s Business Information Services. “A good business credit score can help a business qualify for better interest rates and obtain credit without the need for a personal guarantee, reducing personal liability.”
On the flipside, a poor D&B rating indicates that your business is a high risk for new credit. A low rating could mean you get stuck with high interest rates or unfavorable repayment terms — or don’t qualify for financing at all. Without access to financing, it may be difficult to build your customer base or expand your operations.
How the Dun & Bradstreet Credit Score Is Calculated
Dun & Bradstreet collects information from lenders and suppliers on your business’s payment history to calculate its rating. As a business owner, you can also submit information to D&B so that it can more accurately calculate your score.
D&B calculates your credit score based on financial information including your business’s:
— Payment history on loans and other credit lines.
— Outstanding balances.
— Business transactions.
— Public records.
— Years in operation.
Making on-time payments on your debts will improve your D&B rating, while late or missed payments could drag it down.
How to Check Your Dun & Bradstreet Rating
To get your Dun & Bradstreet number, you’ll need to sign up for a credit monitoring plan. D&B offers two tiers of plans:
— Credit Insights Free: This free plan alerts you to directional changes in four D&B scores: your Paydex Score, Delinquency Score, Failure Score and Maximum Credit Recommendation. It also shares information on your company, business operations and legal events.
— Credit Insights Basic: To view your D&B Rating, you’ll need to sign up for Credit Insights Basic, which costs $49 per month. This plan gives you access to your D&B Rating and other D&B scores while also showing historical trends of your credit scores. It also details any legal events, such as liens or UCC filings.
Learn more about how to check your business credit score.
Tips for Improving Your Business Credit Score
A strong D&B credit score can make it easier for your business to access financing at affordable rates. Here are a few ways you can improve your score:
Review Your Credit Reports
Read over your business credit reports to see what’s influencing your rating. You can check your report from the credit reporting agency providing the score, such as Dun & Bradstreet or a third-party service. If you spot any errors, report them to the credit bureau and request to have them removed.
“Since credit scores are constantly changing, it’s crucial to monitor one’s business credit report in order to catch any potential issues, such as fraudulent behavior,” says Bond.
Make On-Time Payments
Your history of payments on business loans and lines of credit has a major impact on your business credit score. On-time payments can build and maintain a strong rating, while late or missed payments will drag it down.
“The most important tip is to pay the company’s bills on time,” says Ohan Kayikchyan, a certified financial planner. “Or even better, pay ahead of the scheduled due date.”
If you’re having trouble keeping track of payments, coming up with a system to organize your bills and streamline repayment could help.
Reduce Your Credit Utilization
Maxing out your credit utilization ratio, or the amount of credit you’re using compared to what’s available to you, can also negatively impact your score. Reduce your credit utilization by paying down balances. Increasing your credit limit can also help lower your ratio, as long as it doesn’t tempt you to spend up to the new, higher limit.
“Keep your business credit card and line of credit utilization rates under control and don’t max them out,” advises Kayikchyan.
Submit Your Information to D&B
As mentioned, you can only get the best D&B Rating of 1 if you submit financial information to D&B. D&B can still generate a score without your input, but submitting up-to-date supporting documentation can help improve your score.
D&B offers credit-building plans that allow you to submit proof of on-time payment to help raise your score. These plans start at $149 a month and also include access to all of your D&B scores.
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Dun & Bradstreet Business Credit Score: Here’s What You Need to Know originally appeared on usnews.com