What is a Business Credit Score and the Role of Business Verification in it?

“Business credit scores are the backbone of your company’s financial reputation – protect them wisely.”

According to the NSBA Small Business Access to Capital Study, 20% of small business loans are denied due to business credit. Therefore, understanding your business credit score is crucial for building trust and securing financial opportunities. A business starts building credit when it registers with credit bureaus. Read the blog to learn more about it.

What is a Business Credit Score?

A business credit score is a numerical measure of a company’s financial health and creditworthiness. It reflects how likely a business is to meet its financial obligations, including repaying debts, paying suppliers on time, and managing transactions.  Business credit scores are issued by business credit bureaus.

Like personal credit scores, business credit scores provide a snapshot of a company’s financial strength and reliability.

FYI

“Personal credit scores are the three-digit number, typically ranging from 300 to 850, representing individual creditworthiness or how likely they are to repay debts, based on their credit history.”

Purpose of Company Credit Score

Company credit score is a vital measure of a company’s financial health. Following are some of the reasons discussed:

• Help the lenders and financial institutions assess the risk of lending to a business.
• To assist vendors in deciding whether to extend credit terms.
• To help the potential business partners gauge the financial position and credibility of the organization.

Difference Between Business Credit Score and Personal Credit Score

Business credit scores vary across different commercial credit bureaus, while personal credit is summarized into a single score, with Fair Isaac Corporation (FICO) being the most common. Moreover, business credit scores have fewer variables than FICO scores and are generally easier to enhance than personal ones. 

Here is a quick overview of both credit-scoring:

Key Factors that Influence a Business Credit Score

Building a strong business credit profile can often be an identification factor in the success or failure of a business. There are a number of things that influence the business credit score of a company.  Explore some of them in the list below:

• Payment history
• Credit Utilization 
• Company age 
• Industrial risk 
• Public record
• Tradelines and credit mix 

How to Check Business Credit Score

A top-tier business credit score can enable an entity to access the most competitive rates and terms on financing and business insurance. It also opens doors to potential partners by demonstrating the legitimacy and credibility of your business. 

However, in order to check business credit scores, follow these steps:

Choose a Business Credit Reporting Agency 

Multiple credit bureaus offer business credit scores. These bureaus gather and report financial data about businesses. Moreover, these business credit reporting agencies measure payment history and the business‘s likelihood of becoming delinquent on payments. They also provide insights into financial histories while issuing risk indications of a business defaulting on financial obligations.

Collect Business Information 

Before requesting your business credit report, an entity is required to provide key details about the business. These pieces of information help verify the identity and ensure the report is linked to the correct company. The primary requirements include the business’s legal name, employer identification number (EIN), and business registration details. 

Request a Business Credit Report

Once you have chosen the credit reporting agency and collected all the necessary information, you can quickly request your business credit report.  Here’s how you can do it:

1. Visit the agency’s website.
2. Provide the required business information.
3. Make the payment if required.

Interpret the Report 

Once you are done with obtaining the report, the next step is to interpret the information provided carefully. Key sections of the report that require focus include overall business credit score, payment history, legal records, business size, and industry classification.

Role of Business Verification in Business Credit Score 

Business verification plays a crucial role in identifying a company’s business credit score by confirming the authenticity, legitimacy, and operational stability of a business. It involves the process of validating essential business details like legal existence, financial history, ownership, and business records. Here is how business verification influences the business credit score:

Establish Credibility and Legitimacy

Verification ensures that the business is legitimate and legally registered. When a business is verified through trusted sources like official government registries or financial institutions, it builds confidence among creditors, suppliers, and investors. A verified business is viewed as reliable and low-risk, which contributes to a higher credit score.

AML and Media Screening 

Business verification helps with Anti-Money Laundering (AML) and media screening by ensuring the company isn’t linked to illegal activities like money laundering or terrorism. It screens against sanctions lists and news sources, reducing risks and maintaining a trustworthy credit profile.

Accurate Reporting and Financial Transparency

Verification helps to establish accurate financial data. When a business undergoes verification, its financial statements (such as income, expenses, and liabilities) are often scrutinized and cross-checked, ensuring that the information reported to credit bureaus is correct. Accurate data is essential for lenders and suppliers to assess the company’s credit risk

Enable Business Partnerships and Trade Credit

Business verification also facilitates easier access to trade credit and partnerships. Vendors and partners are more inclined to offer favorable terms or extend credit lines to businesses that have been verified. The verification process helps prove that a business is stable, responsible, and capable of honoring agreements, which ensures smooth trade credit and partnership relationships.

Challenges in Business Credit Check

Business credit reports may contain errors or outdated information that leads to inaccurate assessments of a company’s creditworthiness. Moreover, different credit reporting agencies may use varying criteria and scoring models, causing inconsistencies in business credit scores across platforms. Let’s see some of the primary challenges faced in conducting business credit checks:

• Inaccurate or incomplete data 
• Limited credit history 
• Lack of standardization
• Difficulty in verifying information
• Fraud and identity theft 
• Limited access to information

How The KYB Can Help in Getting Accurate Business Credit Checks 

The KYB is a reliable business verification solution that overcomes all the common challenges hindering accurate company credit checks. Lack of information or limited credit history can compromise the integrity of credit assessments. However, by implementing a strong business verification procedure, your agency can efficiently tackle all the challenges.

The KYB ensures that all the data you receive is accurate and reliable. Our solution offers thorough due diligence, confirming every business’s legitimacy before proceeding with a credit score check. 

The proactive solutions maintain compliance, reduce fraud risks, and ensure that all credit decisions are based on trustworthy, verified information. 

Frequently Asked Questions

1. What Is A Good Business Credit Score?

A good business credit score typically ranges between 80 and 100, indicating strong financial stability and low credit risk. Scores above 75 are generally considered favorable for securing loans and favorable terms from suppliers.

2. How Do I Check My Business Credit Score?

To check your business credit score, you can request a report from major credit bureaus. These agencies can provide detailed credit scores and reports based on your business’s financial history and credit activity.

3. What Is A Good Credit Score For A Business?

A good credit score for a business usually ranges from 80 to 100, depending on the scoring model used. A score in this range indicates strong financial health and low credit risk, making it easier to secure favorable financing terms.