DEFINITION of 'Business Credit Score'

A number indicating whether a company is a good candidate to lend money to or do business with. Business credit scores, also called commercial credit scores, are based on a company’s credit obligations and repayment histories with lenders and suppliers; any legal filings such as tax liens, judgments or bankruptcies; how long the company has operated; business type and size; and repayment performance relative to that of similar companies. The three major business credit scoring firms are Equifax, Experian and Dun and Bradstreet, and each uses a slightly different scoring method. Regardless of the specific method used, a business will have a good credit score if it pays its bills on time, stays out of legal trouble and doesn’t incur too much debt.

BREAKING DOWN 'Business Credit Score'

If a company wanted to take out a loan to purchase equipment, one factor the lender would consider is the business’s credit score. It would also look at the business’s revenue, profits, assets and liabilities, and the collateral value of the equipment it wanted to purchase with the loan proceeds. In the case of a small business, the lender might check both the business’s and owner’s credit scores, since the personal and business finances of small business owners are often closely intertwined.

What if Company A was considering taking on Company B as a client and wanted to know the likelihood that Company B would pay its invoices in full and on time? No business wants to do hours and hours of work for a client, then not get paid. Company A could check Company B’s business credit score first, then agree to do business only if Company B’s credit score showed that it had a strong history of paying its suppliers. Company A could even purchase a subscription service to monitor Company B’s credit score on an ongoing basis. If the score dropped significantly, Company A could lower its risk by discontinuing business with Company B or requiring payment in advance.

Similarly, Company C, a wholesale supplier, might want to check the business credit score of Company D, a manufacturer, before shipping out a truckload of goods with an invoice granting Company D 30 days to pay. If Company D has a high credit score, this arrangement would seem low-risk, but if it has a low credit score, Company C may want to ask for payment up front, before shipping any goods.

RELATED TERMS
  1. Credit Score

    A credit score is a number ranging from 300-850 that depicts ...
  2. Credit Scoring

    A statistical analysis performed by lenders and financial institutions ...
  3. FICO Score

    A type of credit score that makes up a substantial portion of ...
  4. Credit Mix

    The types of accounts that make up a consumer’s credit report. ...
  5. Prime Credit

    A credit score that falls into the range that is one step down ...
  6. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
Related Articles
  1. Managing Wealth

    Can You Hit A Perfect Credit Score?

    Everyone wants a great credit score, but few know exactly how to achieve perfection. Find out how your credit score is kept and what it takes to reach a perfect 850 rating.
  2. Personal Finance

    Common Things That Improve And Lower Credit Scores

    Credit scores are used by lenders to estimate credit risk. Find out how you can better earn the trust of lenders and reap the benefits.
  3. Personal Finance

    The 5 Biggest Factors That Affect Your Credit

    Credit companies rely on these factors to determine whether to lend to you and at what rate.
  4. Personal Finance

    10 Ways Advisors Can Help Clients Improve Credit Scores

    Properly managing credit scores can help get new loans and save a lot of money in the process.
  5. Personal Finance

    Do You Understand Your Credit Score?

    Most Americans don't really understand their credit scores. Find out what you need to know.
  6. Personal Finance

    What Is the Lowest Credit Score?

    Learn about the different types of credit scores available to borrowers, and find out about the lowest scores under each one of those credit scores.
  7. Personal Finance

    FICO Or FAKO? The Limitations of Free Credit Scores

    There's something you should know about the scores you get from free credit scoring services: They usually are not the same FICO scores lenders pull.
  8. Personal Finance

    Credit Score vs. Credit Report: Which Is Better?

    They sound alike, but can serve very different ends.
  9. Personal Finance

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  10. Personal Finance

    Which Is More Important: Credit Report or Credit Score?

    Here's the difference between a credit report and credit score, and which is more important.
RELATED FAQS
  1. What's the difference between credit score and credit history?

    Check out the differences between credit score and credit history, and learn how your credit history is used to create your ... Read Answer >>
Trading Center