Business Credit Score – What is it, and why it is so important?
If you intend to seek financing for your company, It’s important that you understand what a business credit score is all about. (Business Credit Score), why it is essential for your business and what to do to improve it.
What is a Business Credit Score?
A business credit score is a numerical rating of a company's creditworthiness based on its financial history. Similar to credit assessment procedures for individual financing, banks check the score, calculated by a third-party credit agency, before deciding on what to offer small businesses.
See how it works:
Companies don't have a credit score; they have several. Each of the three major business credit bureaus — Dun & Bradstreet, Equifax and Experian — calculates and issues individual business credit scores based on your criteria and algorithms.
The three agencies offer a total business credit score between 0 e 100. These scores are based on the company's payment history and, sometimes, on other factors, as determined by each agency.
Both at Equifax and Dun & Bradstreet issue multiple scores. For example, in addition to the primary score of 0 a 100, a Dun & Bradstreet Issues Default Prediction Scores (of 101 a 670), which measure the probability of a company not making payments, and financial stress scores (of 1.001 a 1.875), which predicts the likelihood of a company going out of business without paying its debts based on its history, payment habits and industry statistics. This information is available in more detail on the official Dun websites & Bradstreet (https://www.dnb.com), from Equifax (https://www.equifax.com/business/) and Experian (https:/v/www.experian.com/small-business/small-business-credit).
It's important to remember that many small business owners don't realize that business credit scores are different from personal credit scores.. Business credit score does not affect individual credit score and vice versa.
Commercial credit reflects your company's image to potential creditors and business partners. However, Unlike personal credit – which can only be viewed with the report holder's permission – business credit scores are available to the public. Anyone can view your business credit score for any reason.
According to the National Small Business Capital Access Survey, 75% of business owners said they were denied financing because of their business credit score. The Small Business Majority published a survey (https://smallbusinessmajority.org/our-research/access-capital), demonstrating that 75% of small businesses face difficulties accessing capital.
Your business credit score should be considered strategically important information for you.”
Why does this matter?
Financing is crucial in the small business world. A National Small Business Association (NSBA) relates that 73% of small businesses surveyed use financing over the course of a year. How financing is often a critical path to growth, Few things are as important to small businesses as your credit score.
A good business credit score does more than determine whether or not you can receive financing, but also what amount you can receive and the terms of the loan or credit, including interest rate. Business credit scores can also affect the rates offered to you by insurance companies and even business owners..
How can I access it?
Three Companies Maintain Small Business Credit Scores: Dun & Bradstreet, Equifax e Experian. Each of them has its requirements – and fees – to access your credit score and monitor your credit report.
A Dun & Bradstreet Requires Businesses to Apply for a Dun Number & Bradstreet even to establish your score. You can sign up for free reports on changes to your credit history or pay for different levels of access to your scores and data about your business credit history.
Experian offers one-time access to your score for a fee and monthly or annual subscriptions to monitor your score continuously. Equifax offers, for a one-time fee access to your business credit score.
How to improve my business credit score?
The same way you can improve your individual credit score, It can also boost your company's credit score. The concept is simple, although it requires time and effort. The most common strategy is to pay all bills on time., settling balances on time.
See other things that can influence your business credit score:
Establish lines of credit with suppliers who report negotiations to credit agencies. Not all companies do this, therefore it is recommended that you check first.
The next step is to make payments according to the established deadlines, settling each trade as agreed (on time). When reporting your activities, the companies you deal with will be helping you strengthen your company's credit rating.
Use and Pay Business Credit Cards Promptly. Use commercial credit and, right away, make payments on or before the due date, increase the score.
Watch your credit utilization rate. This is how much credit your business has access to versus how much you use. Giving your credit card limit some breathing room is a smart move. The recommendation is that you do not maintain a debt balance of more than 30% month to month.
Be disciplined and keep personal credit separate from business. Establish business and personal credit accounts and keep them separate. When using trade credit for company expenses, you will be increasing credit score.
Mistakes happen!
Correct any errors on your business credit reports. You can contact the credit bureaus to dispute misconceptions that negatively affect your score.
Make sure your credit score is correct. Small business lenders can and often do look at a business owner's credit and business scores.
While increasing your personal credit score won't influence your business score, will at least help you achieve your goals of obtaining financing for future projects, such as purchasing equipment, purchase of inputs among other things that may require a capital injection.
Credit is an essential element for the growth and success of a company. Therefore it must be monitored and cared for diligently.
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