The term credit score could have several different meanings, and a small-business owner should be familiar with the different scores.
Different Scores Measure Different Characteristics
Consumer credit scores seem to be fairly straightforward. It is a single number that is used by potential lenders to make a decision about loan approval. Of course, it is more complex than that, but in general, a single score helps lenders make decisions. In business, there are different scores used to measure different factors that help define a business.
Dun & Bradstreet offers a variety of useful business tools. The D&B PAYDEX® is a dollar-weighted indicator of a business’s payment performance based on the total number of payment experiences in D&B’s file. The D&B PAYDEX ranges from 1 to 100, with higher scores indicating better payment performance. This measures the past, and is a snapshot in time that could change based on how a business does in the future.
Some Credit Scores Have Predictive Values
The D&B Commercial Credit Score (CCS) is used to predict whether a company will pay its bills in a severely delinquent manner (90 days or more past terms), to obtain legal relief from creditors, or to end operations without paying all creditors in full over the next 12 months, based on the information in D&B’s files.
The Financial Stress Score (FSS) predicts the likelihood that a business will experience financial distress over the next 12 months, such as filing for bankruptcy. The FSS is comprised of a company’s business history, payment habits, and industry norms. Scores range from 1 (Low Risk) to 5 (High Likelihood). When a business is financially stressed, it may have ceased operations following assignment or bankruptcy; ceased operations with losses to creditors; voluntarily withdrew from business operation leaving unpaid obligations; or is in receivership, reorganization, or has made an arrangement for the benefit of creditors.
Small-business owners should understand all of the different credit scores assigned to their business.