If you remember the definition of a company that is defined as an artificial person which is a separate entity from individuals who own, manage, and support its operations. In the same way, your business also has a business credit score like you have a credit score as an individual. Surprisingly, according to research by a business credit score company around 45 percent of the small business owners aren’t aware of business credit scores and 72 percent of business owners didn’t know where to find this information. Read further to know more about business credit scores.

What Is A Business Credit Score?

A business credit score reflects whether your credit repayment is in a timely fashion i.e., whether you can repay your lenders on time or not. Lenders, investors, financial investors consider business credit scores to determine whether your business will be good to lend money or not. It generally depends on a company’s credit obligations and repayment history with suppliers and lenders, legal tax filings, bankruptcies, repayment performance in comparison to other relative company also affects the business credit score.

How Do They Differ From Personal Credit Scores?

Your personal credit score measures your creditworthiness i.e., as an individual your ability to repay a loan or debt whereas business credit score measures your company’s ability to meet its financial obligation.

How Do You Determine Your Business Credit Score?

Business Credit Score

A business credit score is calculated by credit bureaus such as Equifax, Experian, and CRIF, each of them prefers different methods to calculate the business credit score.

Equifax credit score business prefers three different factors to determine the risk associated with the business such as payment index which reflects on-time payments, credit risk which considers the probability that your business will become severely delinquent, a business failure score i.e., probability of your business closing.

Intelliscore Plus is used by Experian to determine business credit score which is a statistically based credit score with 1 to 100 range which is determined by factors such as business age, history of repayment, a new line of credit if any.

When Does A Business Credit Score Matter?

If you wish to get a loan with lower interest rates or want good investors to lure into your business, then you should better start focusing on your business credit score. Many business failures are a result of delayed financing because your business credit score is available in the public domain that’s why it becomes important to establish business credit from the initial stage to get better interest rates, loan terms, negotiation for leverage on payment periods with suppliers.

As a business owner, having separate personal credit and business credit is also very important. Consider your business credit as a dividing wall between your business decisions from your personal credit history. Prefer business credit linked to your business entity and separate Tax ID number rather linked to your name.

This separation will help in removing potential funding obstacles that could prevent your business from growing. Similarly, it also limits your personal liability while running a company, in the event, your business went under, at least your personal credit would be protected.

How Can You Improve Your Business Credit Score?

improve business credit score

Here are some tips to improve your business credit score.

Credit line with supplier and vendor:

Try to build up a good relationship with your vendors and suppliers for exchanging goods in credit for a period of maybe 30-60 days. this would help you build your business credit score and can also act as a reference at the time of the loan.

Timely Payments

A most important factor to build up your business’s credit score to make timely payment to your suppliers and vendors or installment payment if any. it will help you get any future financial assistance if required because of a good business credit score.

Cover Debt Obligation With Net Income

If your business’s net income is enough to cover all the debt obligations, then it showcases your repayment capabilities and leaves a good impact on your business credit score. Any lender or investor is always concerned about the repayment capacity of the company before approval of any decision.

Check Your Report Every Quarter For Inaccuracies

Analysis Credit Score

You need to be aware of every detail of your business credit score to improve it. If you find any errors, then you can report the same to bureaus with supporting documents. You can take lessons from every credit score report especially how to become the type of borrower that a lender caters to in the future.

Maintain your business credit score like your personal credit score to avoid any financial discrepancies in the future!


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