Most Small Businesses Don't Have a Credit Score. Here's How to Get One for Free

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If your small business has a checking account, you may be able to get a free business credit score today.

Businesses sometimes need credit. The problem is that it can be very difficult for small businesses to establish the credit history they need to get a business credit score.

Tech startup Tillful is an alternative credit scoring system that provides free business credit scores. I spoke with Ken So, Tillful's founder, to find out what this could mean for small businesses.

What is a business credit score?

A business credit score is similar to a personal credit score. It is essentially a grade based on your business's past experience with credit. Most business credit scores range from 0 to 100. Better credit is represented by higher numbers.

The main traditional business credit score providers are Dun & Bradstreet, Experian, and Equifax. These agencies look at:

  • Payment history and amount of debt
  • Industry classification
  • Public documents
  • Legal filings
  • Company size and background information
  • How the company compares to others in the same industry

Tillful's business credit score uses similar information. But because you also connect up business bank and credit accounts, Tillful can generate a score when other agencies cannot. Plus, your score is based on real-time data.

Its algorithms identify patterns in your cash flow data, payment history, whether your income is diversified, your debt utilization, your overdrafts, and other data points.

Why do I need a business credit score?

Without a business credit score, many companies simply don't apply for credit even when they need it. They are limited to what they can accomplish with the cash they can access. So says getting a score gives them the confidence to apply for financing and make plans to grow their business.

"My dad struggled to get the capital he needed," says So. "He ran his business with earned income. He was not able to scale the business to its full potential."

A higher credit score might help you get better credit terms and lower business insurance premiums. With a low score, you might need to secure the loan with collateral or a personal guarantee.

You can finance your business with a personal loan, but this has drawbacks. A personal loan will negatively affect your debt-to-income ratio which could make it harder to achieve other financial goals.

Why doesn't every business have a credit score?

The majority of adults in the U.S. have a credit score. But the majority of businesses do not. It's difficult for a small business to get a score. Here's how you'd get one from the big bureaus:

  • Set up shop: You need a Federal Employer Identification Number (EIN), a business bank account, and a business phone listing. It helps to get a business credit card as well.
  • Establish tradelines: Find vendors that report tradelines to the business credit bureaus (there aren't many). "Fewer than 3% of vendors report trade lines to the business credit bureaus," says So. Business credit cards report to the bureaus, but you also need to satisfy all of the other requirements to get a score.
  • Purchase on credit: Buy what they're selling, on pay-later terms. You don't have to carry debt, but you do need to use your credit account regularly.
  • Buy big: A $10 box of pens on net-30 terms won't get you a score. So says that small purchases don't move the needle.

Even if you follow these steps, it's not guaranteed. It takes time, and you'll need to spend a lot of money. It's possible, for example, to have a business credit card and not qualify for a business credit score.

So says that most of his customers do not have a Dun & Bradstreet or Experian score. "The businesses are younger or don't generate enough revenue."

How to get your business credit score for free

Another challenging aspect of business credit scores is that they cost money. Unlike consumer credit reports, the agencies are not obligated to give you a free copy of your business credit report. Prices range from $40 to $100 for one-time access, or $30 to $250 per month for ongoing access.

You can, however, get a free business credit score from Tillful.

All you need to do is connect one or more business bank and credit card accounts to your Tillful dashboard. In most cases, the score is generated within a few minutes. "The rich data is already there," says So. "We unlock it to better risk assess customers."

The Tillful score is free, and you can also view the factors that affect it. Within your Tillful dashboard, you'll see partner lenders who accept the Tillful score. If you qualify, you'll see pre-approved offers. You can also show your Tillful score to other lenders.

"Many small businesses want to separate their business credit from their personal," says So. He notes that the majority of lending partners who accept the Tillful score don't require a personal guarantee to secure the loan. Also, most report to the business credit reporting agencies, so the loan will help to build your business credit history.

If you have a small business that needs credit to grow and scale, Tillful might open the door to affordable financing. Plus, you can check your Tillful score for free. And if it's not as good as you'd hoped, you'll be able to see how to improve it.

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