Business credit scores are vital to the growth of your company — especially if you're a small business. Without a good credit rating, your business may have difficulty dealing with suppliers and will likely get slapped with high interest rates — and that's if you can even secure a loan. By improving your business credit score, you are increasing the likelihood that your business will remain viable, and even grow, in competitive markets.
Among other factors, lenders use your business credit score to answer the questions:
- Does your business have the funds to make the necessary payments?
- Is your business likely to make the payments on time?
- Does your business have enough collateral to repay the loan in the event your business fails?
Educate yourself on commercial credit
Though business credit scores and personal credit scores both help creditors weigh you as a financial risk, the two are not identical. While a personal credit score ranges from 350 to 850, a business credit score operates on a range from 0 to 100. In addition, business credit scores aren't kept as private as personal scores. Commercial credit scores can be requested and viewed by anyone.
There are three main business credit bureaus you should be aware of:
- Dun and Bradstreet:The primary business credit reporting agency.
- Equifax for Business
- Experian Small Business Services
Know your business credit score
The first question you need to ask yourself is "Does my business even have a credit score?" Just because you have a business, doesn't mean you have a business credit score. Credit reporting companies require a minimum amount of information before they generate a credit report for a business. If your business isn't listed, check with your vendors to see if they are reporting your payment history. If not, it may be in your favor to trade-in your vendor for one who does.
Once you qualify for a business credit score, it's essential to continue monitoring your credit rating. Over time, your credit is at risk for errors and fraudulent activity. By catching these inaccuracies early-on, your business is less likely to suffer major losses.
If your firm is in the small business majority, you probably don't draw a hard line between business expenses and personal purchases. This isn't going to be the downfall of your business, but avoid relying completely on your personal credit score to grow your company. Ensuring there is, at the very least, a fuzzy grey line between the two ensures your business credit doesn't crush your personal credit and vice-versa. Additionally, as a result of the "credit squeeze," some creditors are refusing to use personal credit scores when making judgment calls on the riskiness of your business.
Improve your business credit score
By being fully aware of the factors that determine your score, you can effectively manage your credit rating. Here are a few tips to bolster your commercial credit score:
- Make every payment and make them on time.
- Keep older accounts active — a long history will work in your favor.
- Open new credit lines gradually, not all at once.
- Balance your debt-to-credit ratio by transferring balances from maxed-out credit lines to others with lower balances.
- If you have any delinquent payments, work to make them right. Creditors are often willing to meet you halfway if you're in a jam.
- If your credit score is low, don't continue to make the same mistakes. If you know it's going to be tough for your business to shell out a loan payment, try to finance using another option.
Additional information available here: Experian Business Credit Facts, AllBusiness