Many people do not understand how the business credit scoring process works. While it is based upon a complicated financial formula, there are some basic principles that you will need understand. Here are the basics of the business credit scoring process and how it works.

The Process

The process of creating business credit scores was invented in 1995 by Fair Isaac. They created a formula that could accurately predict the likelihood of a business to pay their bills in the future based upon past credit experience. By looking at a number of different financial factors regarding the business, the credit bureaus could now come up with a credit score for businesses just like they do with individuals.

Scale

The scale for business credit cards works differently than what you are used to with personal credit scores. With a personal credit score, the maximum score that you can get is 850. With a business credit score, you will get a score of somewhere between 0 to 100. The closer that you are to 100, the better credit risk you are.

Sales Volume

One of the major criteria for business credit scores is the amount of sales volume that they have. This also plays a major role in determining how much credit a lender can extend to a business. If the company has a larger sales volume, they are most likely going to be eligible for a larger line of credit.

Years in Business

Another vital part of the formula involves determining how long the company has been in business. Companies that have a longer business history are going to get a higher credit score. If you are a new business, your credit score will not be able to be as high.

Payment Habits

Just like with personal credit, how you pay your bills can drastically affect a business credit score. Credit bureaus like to see businesses that regularly pay their bills on time without having any late payments. The credit bureaus are going to look at your track record over a long period of time to determine what your payment history is like.

Outstanding Balances

The credit bureaus are also going to look at the amount of outstanding balances that you have for your business. If you have all of your credit accounts maxed out, this is not going to bode well for your business credit score. Credit bureaus like to see a low amount of outstanding balances in comparison to the total amount of credit that you have available to you.

Public Records

The credit bureaus are going to try to find out if you have any judgments against your business on public record. If you have any outstanding debts that have not been settled or other public record issues, this can drastically lower your business credit score. If you want to boost your score, you need to settle any of these debts or judgments as quickly as possible.

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