With a high business credit score, you can secure competitive interest rates and terms on loans, get approved for more affordable insurance rates, and even protect your personal credit. Your business credit score is essentially an indicator of your business’s financial health. While business credit scores are similar to personal credit scores, there are some notable differences, which we’ll explain in this post. In this post, we’re going to review:
- What business credit scores are.
- Why building business credit is important.
- The business credit reporting agencies are out there.
- How each business reporting agency comes up with their business credit scores.
- How business credit affects your business.
About Business Credit Scores[caption id="attachment_9229" align="alignleft" width="614"] From Pexels.com[/caption] Just like a FICO score represents how creditworthy you are, your business credit score shows the creditworthiness of your business. To generate your business credit score, lenders use the payment history and information found on your business credit report. Any time you apply for a loan or other financing product, a lender will look at your business credit score to determine whether you’ll qualify for their options. They’ll also use your score to decide on the interest rate and terms to offer you. If you have a high business credit score, you'll be considered a responsible borrower and can land the very best interest rates and terms. The key differences between a personal FICO score and a business credit score are:
- Range: Unlike personal FICO scores that range from 300 to 850, most business credit scores are in the zero to 100 range.
- Uniformity: While consumer credit bureaus use FICO algorithms to calculate a business credit score, there aren’t any industry standards for business score algorithms. Therefore, each business credit bureau has its own way of calculating it.
- Access: You may receive a free personal credit report once a year from Equifax, Experian, and TransUnion, which are the three major personal credit bureaus. If you’d like to view your business credit report, you’ll be charged a fee.
- Privacy: Your personal credit score isn’t available for anyone to view. However, your business credit report can be accessed by just about anyone as long as they pay for it.
- Types of Information: In most cases, your business credit reports include details about the accounts your company has, not your personal accounts. Keep in mind that despite this, some lenders may still look at your personal credit before extending financing.
The Crucial Nature of Building Business CreditIf you hope to get approved for a lease, loan, or line of credit for your business, building business credit is essential. A strong business credit history can also allow you to receive more favorable interest rates and/or terms from lenders and vendors. In addition, an established business credit history may make you eligible for financing without a personal guarantee, which puts you on the hook for the debt if your business can’t pay it back. To build your business credit score, follow these tips. [caption id="attachment_9230" align="alignnone" width="614"] From Pexels.com[/caption]
- Legally register your business: The first step to building business credit is incorporating or forming an LLC so that you can get a federal employer identification number. Instead of using your Social Security number, business credit reporting agencies may use this number to track your business credit.
- Obtain a business card and business bank account: Once you get a business credit card and bank account that you strictly use for business purposes, make on-time payments, and keep your credit utilization low.
- Prioritize vendors who report payments: When you’re selecting vendors for your business, it makes sense to go with the ones that have confirmed they report payments to the credit bureaus. Also, pay them early whenever possible.
- Monitor your business credit reports: Get into the habit of checking your business credit reports at least a few times a year. If you find any errors or inaccuracies, dispute them right away.