Dun &
Bradstreet is the primary company used to evaluate business credit and issue a
credit score known as a Paydex score.
There are also
other companies that provide similar credit evaluation services to businesses
based on their independent databases. One of them is Experian's Business Credit
Division who offers a credit score known as an Intelliscore.
Experian is
one of the three major consumer credit rating bureaus, but also provides
business credit evaluations for over 27,000,000 small businesses and
corporations. Experian's model is designed for companies that provide goods and
services to small businesses.
Some of the
items listed on Experian's reports include Business credit scores and credit
summary, Key facts about the business, Corporate registration and contact
information, Summaries of collections and payments, Uniform Commercial Code
filing information, Banking, insurance and leasing information, Bankruptcy
filings, Judgment filings, and Tax lien filings.
The Experian
Intelliscore ranges from from 0-100 with a lower score indicating a higher risk
for serious delinquency. The 0-100 is a percentile score that
reflects the percentage of businesses that score higher or lower than the
specific business being looked at. For example, if the business has a score of
20, this means that company scores better than 19% of other businesses.
That also means that 80% of other businesses score higher than that
business.
Payment status
on commercial accounts is treated much differently than personal accounts, and this
accounts for about 50% of an Intelliscore. On the personal side, a consumer has
30 days after a payment is due before a late payment can be reported on their
credit. But on the commercial side, a creditor can report a late payment the
day after it's due.
Approximately
15% of an Intelliscore is based on the amount of derogatory items and public records. Liens, judgments,
bankruptcies, UCC filings and other derogatory items indicate that your company
has had financial trouble in the past. Before letting a bill or credit
obligation get to the courthouse, see if there is an alternative that might
work. Reach out to the person or company that you owe money to and see if some
sort of arrangement can be worked out. If you are dealing with a collection
agency or other company, they may be willing to work out a settlement with you.
It's almost always more efficient for them to work with you directly than
through the courts.
Approximately
another 15% is based on Credit Utilization; specifically, the ratio of
account balances to recent high credit balance, the ratio of delinquent
balances to credit limits, and balances carried in relation to the rest of
businesses in the same industry. Since many business credit accounts don’t
have credit limits, this ratio is used as an indicator of how much financial
stress a business might be experiencing. The assumption is that the closer a
business gets to its highest historical debt amount, the more difficult it
could be for that business to make its payments on time.
Approximately another 10% of the score is based on Payment Trends. They
are also a part of the overall payment status factor that accounts for 50-60%
of your score. If you are paying your bills increasingly late, your payment
trend will show that your average DBT is increasing, and your score could take
a hit. In contrast, paying your bills on time or early will lower your average
DBT and improve your score. Slow or late payments trends, as well as total
number of delinquent accounts are the most important factors to consider within
the payment status category. Days Beyond Terms (DBT) indicates how many days beyond terms your bill payments are. In consumer
credit, a bill is considered late when it is at least 30 days overdue. But in
business credit, there is a wide variety of payment terms such as Net 30, Net
60, etc. So, for example, if a business is supposed to pay its bills within 60
days and the business pays on day 67, the DBT is 7. Your business credit will
be negatively impacted the higher your DBT is.
Approximately
the last 10% of your credit score is based on Company Information. This is
related to your business’s industry type, and is especially important because
certain industry types are automatically considered high risk. Make sure this
information is correct so your business is not being categorized in the wrong
industry. Additionally, information such as how long you have been in business,
number of employees, business owners, and contact information is listed here.
This information needs to be accurate and congruent with any application for
financing. If a bank or other lender is told your business is in a certain
industry but then checks your business credit and a different industry is
listed, it may well result in a decline. Ensure your SIC and NAICS codes are
correct
Expert Credit Consultants, LLC specializes in establishing business credit and funding using our exclusive Business Credit and Financing Suite as well as consumer credit restoration and optimization. www.ExpertCreditConsultants.com.
