Lesson 2.5.3: How is Business Credit Score Calculated?
Business credit scores are calculated by credit reporting agencies, such as Dun & Bradstreet, Experian, and Equifax. While the specific calculations may vary slightly between agencies, the following factors generally influence the calculation of a business credit score:
- Payment History (35-40%): Consistent on-time payments positively impact the credit score, while late payments or defaults can have a negative effect.
- Credit Utilization Ratio ( 20-30%): This ratio reflects the amount of available credit a business is currently using.
- Credit History Length ( 15-20%): The length of time a business has had credit accounts impacts its credit score.
- Public Records ( 10-20%): Bankruptcies, tax liens, judgments, and other public records can significantly affect a business's credit score negatively.
- Company Size and Industry Risk ( 5-15%): Some credit reporting agencies consider the size of the business and the industry in which it operates.
- Business Information ( 5-100%): The accuracy and completeness of business information, such as legal filings, registered address, industry classification, and ownership details, can also impact the credit score.
These percentages are approximate and can differ depending on the specific credit reporting agency and their scoring models. Additionally, credit scoring models are subject to updates and changes by the agencies, so it’s essential to consult the specific agency for the most accurate and up-to-date information.
Now that you’re familiar with the calculation of business credit scores, our next lesson will explore the definition and utilization of business credit scores by lenders.