Business Credit Score: Exploring the Secret To Business Success

by | Aug 31, 2021 | Finances

Many businesses are unaware that utilizing personal credit for business transactions might harm their credit score.  

If you know how a personal credit score and report operate, now is the time to understand how a company’s credit score and report work. A company or business credit score is based on a commercial report supplied by financial institutions, similar to your credit score.

Understanding the Personal and Business Credit Score

Lenders use a personal credit score to determine whether they give you money, how much to lend you and what terms to employ. While the ranges of personal credit scores vary, one constant remain: the higher the score and the more financially trustworthy a borrower can be.

While financial institutions use your company credit score to assess if you’re a strong candidate for debt financing. Keep in mind that a good business credit score will increase your chances of getting a loan, and you’ll probably be able to get far better conditions. On the other hand, a poor credit score might result in higher interest rates and, in certain circumstances, disqualification from borrowing.

Additionally, when deciding whether to charge your firm on a Net 30 or Net 60 basis, vendors and suppliers frequently examine your business credit score.

Ways to Determine Your Business Credit Score

  1. Equifax – uses a business’ payment history, public records, business’s size and age, and demographics in scoring a business credit.
  1. Experian – Experian’s business credit score, ranging from 1 to 100, considers the same variables as Equifax’s. Experian collects information from lenders and vendors that have provided your company with a credit line or a loan and compares it to data from peers in your sector.
  1. Dun and Bradstreet – Dun & Bradstreet’s Paydex report ranks your business credit on a 100-point scale based on your company’s one-year payment history, a financial stress score, and other data from at least four vendors.

Building a Good Business Credit Score

  1. A Separate Business Legal Entity – If you’re thinking of forming a company, talk to a lawyer and an accountant to make sure you’re aware of all the regulations that apply, including those that govern tax reporting, compliance, and operations.
  1. Get an EIN Online – This can help you keep track of your small business money, file tax returns, and build your business credit score.
  1. Establish a Business Checking Account – Create separate bank accounts and credit cards for your business using your EIN. These accounts’ statements are necessary supporting documents for keeping track of business costs.
  1. Get Help From a Professional Accountant – You may have company debts that you haven’t included in your financial statements. Hiring a professional bookkeeper or accountant allows you to concentrate on your company’s main activities. It also aids you in meeting regulatory obligations.

Tips on Boosting Your Business Credit Score Easily

  1. Create a Good Credit Lines – Dun & Bradstreet’s report requires at least four vendors. Spend time cultivating connections with vendors and suppliers so they’ll be ready to sell you on credit for 30 or 60 days.
  1. Establish a Timely Payment Manner – Return the favor by always paying your vendors and suppliers on schedule. It will not only assist you in building a solid payment history. Still, it will also increase the likelihood of those businesses and individuals reporting your payment history to the credit reporting bureaus.
  1. Get a Business Credit Report Now – Building company credit takes time, so it’s helpful to know where you are now and where you might improve. Some credit agencies, such as Experian, provide reason codes that explain your credit score and offer suggestions on how to improve it.
  1. Establish a Tracker for Business Credit Quarterly – your credit score might change in a short period. It will alert you to a negative report from a vendor or the consequences of an increase in your used credit. 
  1. Check for Errors in Credit Report – If you discover an inaccuracy in your report, notify the appropriate agency as soon as possible with supporting proof. Pay close attention to any inaccuracies in the information included in public documents.

Importance of Business Credit Score

  1. Tax Purposes – While there is a long-range of small company tax deductions available, you must submit adequate paperwork to substantiate your claim. During the audit, you must show that each deduction was a legitimate cost directly connected to your business. If you can’t convincingly establish this, you might face penalties such as carelessness, late payment, or fraud.
  1. Debt Liability – If your firm is organized as a corporation or a limited liability company, proving that finances are separate prohibits a creditor from seizing personal assets to repay a debt.