If you’re a business owner, it’s likely that when you applied for financing or leasing a property, the bank or leasing agency checked your business’s Dun and Bradstreet rating. Dun and Bradstreet is a company that gives a potential investor or financier insight into a business by providing a check with other pertinent information.
It’s important to keep an eye on your D&B rating to ensure your business remains in good standing, as it could affect future business deals. Here’s everything you need to know about it.
What is the D&B Rating?
What is a Dun and Bradstreet credit rating? Simply put, it’s a rating of how financially stable your business is.
Dun and Bradstreet is a credit reporting bureau focused on the commercial sector. It compiles a list of information on businesses to assist interested parties with the decision-making process, whether it’s for investment purposes, business loans and small-business credit cards, long-term lease agreements or even financing equipment. This information is represented by a rating known as the Dun and Bradstreet credit rating or D&B rating.
A D&B rating is broken down into two segments to provide accurate and fair information on companies. These two parts indicate the financial strength of the company and the company’s composite credit appraisal.
For the first part of the score, a 5A rating would indicate a company with over $50 million in net worth (the highest value), while an HH rating is for companies with a net worth of under $5,000 (the lowest value). The composite credit appraisal that indicates whether a company is creditworthy uses a rating scale of 1 to 4, where 1 is the highest score.
Types of D&B Ratings
A D&B report has various sections that determine the overall rating.
This score measures your company’s past payment performance with a score between 1 and 100. To be eligible for loans and decent credit ratings, this particular score should fall within the 80 to 100 range.
Anything lower than that may indicate difficulty with making payments. Businesses within the 0 to 49 range are considered high risk and would dissuade investors or lenders.
D&B Delinquency Predictor Score (DPS) and D&B Failure Score
Both these ratings rely on a 1-out-of-5 rating system, where 1 is the lowest likelihood and 5 is the highest. These ratings predict the likelihood of businesses missing payments or experiencing financial stress in the next 12 months.
D&B Credit Limit Recommendation
Companies who wish to extend credit to a business, such as those extending terms for stock purchases, may find this report useful. It calculates the most favorable terms for a business, including the recommended limit. Banks may also use this as a guide for finance.
D&B Supplier Evaluation Risk (SER) Report
Businesses who rely on suppliers for stock want to know their supply is uninterrupted and secure. This report digs a little deeper into the supply chain and can determine whether a supplier is at risk of going out of business within the next 12 months. It uses a rating scale of 1 to 9, where 1 is the lowest risk.
What impacts my business D&B rating?
There are many factors that can impact a D&B rating, including:
- Changes in your business’s payment profile: This could be a positive change through maintaining payments. Skipped payments could affect the rating negatively.
- Potential legislation: The documentation you provide to assess your business’s standing might reveal potential legal issues, which can affect your business’s rating.
- Not providing documentation at all: While it’s not necessary to provide documentation, your business can only reach a maximum rating of 2 without it.
- Maxing out your credit: Maintaining regular payments on your loan products is not enough. It’s also important to keep lending within acceptable limits and not to max out your lines of credit.
How can a change impact my business?
Lenders, future business partners and other businesses that may wish to establish a long-term relationship with your business can obtain a copy of your D&B rating.
If your rating drops, it could trigger a ripple effect through these business connections. It could affect your line of credit at a local bank, or your landlord could refuse the renewal of your lease. Suppliers may also reduce the terms of your accounts.
On the other hand, if your rating improves, you’re in a better position to negotiate better terms.
How to improve my business’s D&B rating
Peruse your reports
It’s important to know what credit bureaus and similar agencies say about your business. The fastest way to get a breakdown of your standing is by reading the reports. Ensure the information on these reports is correct, and if there are errors, report them to the bureau immediately.
Manage your repayments and lines of credit
Ensure your monthly payments are made on time, and if you’ve missed payments before, get on a regular payment schedule again. It’s also important to stay within your lines of credit. Credit lines that are constantly maxed out affect your rating negatively. If you have no credit, you may want to consider applying for a small loan to start building your credit history.
Submit updated information
A D&B rating doesn’t require documentation for the rating to generate; however, it can only score your business a maximum composite credit appraisal of 2. To get that rating to 1, you would need to provide supporting documentation.
How to obtain D&B credit scores
The first step on how to get Dun and Bradstreet rating is to create a D-U-N-S number, which you can do online. This number will allow you to build your score, and sometimes, this number has already been created for you based on searches by your suppliers, clients or lenders.
Once the D-U-N-S number is created, you can establish your Business Credit File and sign up for CreditSignal, which alerts you when there are changes to your score. Full reports are behind a paywall, which requires you to sign up for one of the packages.
Dun and Bradstreet is the oldest credit bureau in America and focuses solely on businesses. How important is a D&B rating? For both small and large businesses, it can directly affect those things you need for growth and progress, such as investments, long-term contracts and lines of credit.