Understand Your Business Credit Score

Omar Visram
Understand Your Business Credit Score
Table of Contents

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Many business owners are unaware that their company has a credit score. But much like a personal credit rating, your business credit score is a numerical value that reflects your company’s level of creditworthiness.

Monitoring your company’s credit history is important because the stronger your business credit score is, the more likely you are to secure better terms for small business loans, reduce your insurance policy rates, and improve your borrowing power. So, let’s take a look at how you can benefit from accessing, understanding, and – most importantly – keeping your business credit score healthy.

What Does My Business Credit Score Tell Me?

Your business credit score essentially tells you how creditworthy (read: financially reliable) your business is, was, and is likely to be going forward. Potential lenders use company credit scores to assess your:

  • Payment History (how well your business has performed in the past in terms of paying back loans and paying bills on time),
  • Solvency (how favourably your assets compare with your liabilities as an indication of your ability to service current debts), and
  • Risk Scores (how likely your business is to meet or default on its debt obligations in the future)

Keeping an eye on your business credit score will not only tell you how likely you are to qualify for new, extended, or first-time financial credit, it can alert you to possible identity theft or credit fraud events. And as an added bonus, the fees charged by business credit reporting agencies for providing your credit scores are usually considered a tax-deductible business expense!

Why is a Healthy Credit Score Important?

One of the best reasons to keep your business credit score healthy is that robust credit reports tend to result in an improved ability to secure business funding. A good credit score can, in fact:

  • increase your chances of getting a small business loan at an affordable interest rate,
  • give your company access to credit without your having to sign a personal guarantee, and
  • help you save money on business insurance

There’s also the fact that the financial activity attached to any business credit cards you use can impact your personal credit score for better or for worse.
Unlike personal credit reports, however, your business credit score is available to anyone willing to pay for the appropriate report – including potential clients, suppliers, and investors. That means that maintaining a strong credit score is not only critical for boosting your company’s dependability in the eyes of creditors, it’s essential for making you more attractive to business partners of all types.

How is My Business Credit Score Calculated?

The three main credit bureaus responsible for compiling company credit histories and providing reports are Dun & Bradstreet, Experian and Equifax.

Although each of these business credit reporting agencies uses its own proprietary system to calculate your business credit score (Dun & Bradstreet’s credit rating, for example, is known as your Paydex score), every credit score provider shares some common ground in the sense that:

  • Your banking information and government taxes will contribute to your final score.
  • Most credit score providers are linked to a debt collection service, meaning your business credit score will be directly linked to your ability to pay off debt.
  • Any company you work with has the ability to report your business to a credit scoring organization if you repeatedly don’t pay on time.

In terms of an actual number, while personal credit scores are usually measured on a scale of 300-850, most business credit scores range from 1-100. The higher your number (75 and above is typically considered an excellent score), the less of a risk your business represents when it comes to qualifying for a loan or credit.

Tips for Building and Improving Your Credit Score

Managing Your Accounts Payable

One proven method for improving your business credit score is to streamline your company’s accounts payable process.

At Enkel, we highly recommend paying vendors on time - or even early, if possible. But if you’re ever in doubt as to how to prioritize bill payments, remember that large corporations (like utilities companies and telecommunications providers, for example) are far more likely to report your business to a credit score or debt collections company. So paying them first is a good rule of thumb.

We also strongly suggest that you review your business credit score reports at least twice every 12 months - even if you make it a habit to manage your credit accounts efficiently, and pay bills on time. Being proactive about your business credit rating will pay dividends any time you need to budget with confidence for a future purchase, or plan expansion activities that may require a loan.

Separating Your Finances

If you haven’t already, you should make a point of separating your personal and business finances. Using separate banking and credit accounts not only allows for easier reconciliations, it contributes to a more efficient monthly bookkeeping process.

Many small business owners make the mistake of relying on personal loans and credit cards to survive intermittent cash crunches while growing their companies. But the truth is that this can actually reduce your chances of qualifying for a larger commercial loan down the road because it prevents you from building up a strong credit rating.

One of the simplest ways to get a start on building up your business credit score is to:

  • secure a business credit card,
  • use it regularly, and
  • pay the monthly balance in full and on time

Interested in learning more about how you can improve your business credit score? Check out this solid advice from Lendified.

Using Your Business Credit Score to Secure a Loan

Unlike consumer credit records, business financing credit activities are typically considered public records that anyone can access on request. Just the same, it’s important to remember that both your business and your personal credit histories can affect your business credit score - and your subsequent ability to secure a business loan or line of credit.

If you’ve been taking steps to keep your business credit score healthy, you should be able to use it to help your company land the financing option it needs. According to Lendified’s Austin Pantaleo, for example, securing credit through an online lender can be a quick and painless procedure.

“If you’re seeking capital from an online lender such as Lendified, your business credit score will automatically be pulled when you apply, at no cost to you. Our system will then evaluate all your information to instantly pre-qualify your business and provide you with a free quote.”

Looking for more information on how you can improve your company’s chances of being approved for a small business loan? Read up on our tips for growth planning, understanding your financials, and preparing for repayments in advance.

Now that you understand the significance of your business credit score – and the important role it can play in funding, running, and growing your business – you may want to find out where you stand by checking your status with the three major credit bureaus. Mistakes sometimes happen with credit data. And monitoring your business credit scores on a regular basis allows you to address potential discrepancies before they reflect negatively on you or your company.

In Partnership with Lendified

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