Last Updated on December 21, 2022 by Selina Parker
As a small business owner, you probably do not think about the importance of your business credit score. The majority often assume that if you are making money and paying bills on time, maintaining business and personal finances, it does not matter what happens with your business credit score.
It is an assumption that will hurt your business in the long run. You must be aware of how important a good business credit score is for your company to grow and stay successful.
WHAT IS A BUSINESS CREDIT SCORE?
Business credit scores apply to businesses instead of individuals by the name themselves. It is a rating of your business’s creditworthiness, just as a personal credit score is a rating of your creditworthiness.
Check your business credit scores regularly to spot potential problems that may cause lowered scores, such as missed or late payments.
HOW IS A BUSINESS CREDIT SCORE CALCULATED?
The information on your business credit report may determine your business credit scores, such as a company’s size, previous financial performance, payment history, account data, etc.
Business credit reporting agencies like Dun & Bradstreet calculate your business credit score. Equifax and Experian Business. These major business credit bureaus use the information in your business credit reports to give your business a score between 0 and 100.
WHY IS A GOOD BUSINESS CREDIT SCORE IMPORTANT?
Just as with personal credit scores, the higher your business credit score, the better. Since business credit scores range from 0-to 100, 75 or higher is considered excellent credit. A high business credit score means you are a low-risk borrower to lenders and suppliers.
It can lead to lower interest rates on loans and lines of credit and easier approval for new accounts.
You can inspect your company’s credit report with banks, vendors, and providers With the Equifax Business Credit Risk Score and Equifax Business Failure Score to see the risk of late payments or business failures to build strong business credit.
HOW CAN YOU IMPROVE YOUR BUSINESS CREDIT SCORE?
Just like with personal credit scores, there are ways that you can improve your business credit score if it is not where you want it to be.
PAY YOUR BILLS ON TIME
Your payment history is a significant factor in your business credit score. It means that paying your bills on time will help improve your business credit score.
UPDATE INFORMATION REGULARLY
If any information in your business is changed, update the business credit bureau as soon as possible. It includes changes in the business name, address, phone number, contact information, etc.
HAVE A GOOD CREDIT UTILIZATION RATIO
Your business credit utilization ratio is how much of your total available credit you are using at any given time. Try to keep this number below 30% for the best results.
LIMIT BUSINESS CREDIT APPLICATIONS
When you apply for too much business credit at once, it can hurt your business credit score. Only use the amount of credit you need and will be able to pay back promptly.
EFFECTS OF BAD CREDIT
If you disregard your business credit score, it can lead to some very negative consequences for your business. Like with personal credit scores, a low business credit score will mean that you are a high-risk borrower.
HIGH LOAN INTEREST
Lenders will grant you more significant interest rates if you have a poor credit score than they would if your credit was good.
UNABLE TO OBTAIN NEW LOANS
With a poor credit rating, lenders will be less likely to approve you for a new loan, even for your business.
HIGHER INSURANCE RATES
Insurance companies can view lousy credit as a sign of poor business practices, and they may raise your premiums to protect themselves.
Getting contracts with new vendors may be challenging for organizations with a history of late or delinquent vendor payments.
Because of your company’s bad credit history, you will pay higher utility bills.
Your business credit score is a significant component if you are looking for funding. Make sure to keep track of your business credit score and take steps to improve it if needed. A high business credit score can save you money in the long run by securing lower interest rates on loans and lines of credit. So keep your business credit score at the optimal range.
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ABOUT THE AUTHOR
“What began as a life and career coaching services company to aide entrepreneurs through the early-stage challenges and tough transformations of starting a social venture has evolved over the years to include mergers and acquisitions, organizational consulting, and business growth advisory services to mission-driven organizations that strive to improve access to basic physiological, safety, and security needs while increasing their profit margin. Clients include founders and organizations with the purpose of addressing deficiencies in delivering quality healthcare and mental health services, sufficient employment, access to clean water and air, safe shelter, adequate food, and more.”