Skip to main content

Building Your Business Credit Score

A good business credit score provides the foundation your company needs to grow, acquire new machinery, purchase inventory and smooth out cash flow.

Establishing and maintaining business credit can be complicated. But, nothing could be more important to the success of your company than establishing a solid business credit score.

Similar to a personal credit score, this rating will determine how banks judge the risk of giving you a loan or extending a line of credit. A good business credit score means you can get more favorable rates and repayment terms. A poor score will hamper your efforts to grow your company, buy new machinery, manage cash flow or acquire inventory.

Your business credit also impacts your organization’s ability to bid on contracts or shop your services to potential business partners. Just like you, other companies want to know they are working with someone who is known for delivering their products or services on time and who won’t suddenly go out of business.



Establishing Business Credit


So how do you establish a business credit score? First, you must completely separate your personal and business finances. Otherwise, lenders can't judge the financial stability of your business.


The initial steps to accomplish this include:


  1. Incorporating or forming a limited liability company (LLC), limited partnership or corporation to ensure your company is seen as separate from your personal finances. (With sole proprietorships it's possible for credit and personal scores to be listed on the same credit report.)

  2. Obtaining a federal Employer Identification Number (EIN).

  3. Opening a business checking account using your legal business name.

  4. Setting up a dedicated business telephone line using your business name and making sure it's listed.

Once these elements are in place, you can apply for a business loan or a line of credit.

What's In a Business Credit Score?

Personal credit is typically measured using a FICO score, which has a value ranging from 300 to 850. A higher number indicates a better credit score and thus a lower risk to lenders.

Business credit scores, reported by Experian, Dun & Bradstreet and Equifax, range from 0 to 100, with 75 or better considered 'excellent.' The lower a business score, the less likely a business can secure a loan or credit extension. Depending on which credit agency is doing the measuring, scores are based on a variety of factors such as:

  • Length of time in business
  • Records of making payments to vendors and banks on time or ahead of time
  • Overall credit obligation to suppliers and lenders
  • Accounts payable and receivable
  • Available credit limit on revolving credit accounts, such as credit cards
  • Legal filings from court cases
  • Lines of credit you've applied for in the last nine months
  • New lines of credit you've opened in the last six months
  • Percent of available credit used

What Impacts a Business Credit Score?

Banks and other financial institutions look at business credit scores as the risk of default. The lower the score, the less likely they will be to extend loans for expansion or lines of credit for purchasing.

Be vigilant about defaulted or late payments and liens—these can have a significant negative impact on your business credit scores.

It’s wise to regularly check with the credit reporting agencies to ensure your business credit scores are correct and relatively close in value.

If one agency’s score is significantly higher or lower than the others request a full credit report to determine if fraudulent transactions have been made or erroneous information supplied.

It's also vital to never supplant business funds with personal credit, since this can cause an overlap in the two scoring systems. Because business scores are queried much more frequently than personal scores, this also can cause a downgrade in your personal credit rating over time.

Business credit scores are a necessity for long-term financial viability, and the sooner a credit score exists, the better for your business, no matter its size.

Finally, don’t wait until you need a loan to establish a relationship with a bank. It’s better to build a strong banking relationship before you need to borrow money — because banks tend to prefer lending money to businesses they already know.

Contact a Cadence banker today if you have questions about your business credit or applying for a business loan.

Questions? We are here for you...

To ensure your safety, please do not include sensitive information in your submission.