What business credit is, why it matters, how to check your business credit scores?
What is Business Credit?
Business credit is a simple idea: It is merely your business’s ability to buy something on credit. The viability of your business credit is then measured via your business credit score. Instead of using your personal accounts and payment history, your business credit score is based on your business’s accounts and payment history.Your business credit score is a reflection of the riskiness of your business. Lenders, insurance companies, and even vendors may take your business credit score in to account when determining whether to approve a loan, underwrite an insurance policy, or provide you with a credit account.A higher credit score means that you’re a more creditworthy borrower that makes payments on time, making your business less risky. On the other hand, a low business credit score may indicate that you’ve had trouble paying off your debts in the past, making you a risky borrower.
Why is so important?
Your business credit history matters whenever you open an insurance policy, apply for a business loan, or try to obtain credit. Lenders, vendors, and insurance agencies typically pull your business credit score.
Your business credit score not only determines if your policy or financial product is approved, but it’s also used to get lower rates on insurance policies, more favorable terms for loans, and open up higher borrowing limits.
If your business credit score is low or non-existent, you may not qualify for certain financial products. Your insurance rates may be higher, your borrowing limits lower, and your rates and terms on loans not as favorable. This is why it’s important to boost and maintain your business credit score.
If you own a business, you most likely have a personal bank account and a business account. Establishing a business credit profile is another way to keep your business and personal expenses separate. While it may not seem like a big deal now, you’ll be grateful for the separation come tax time.
One final thing to note is that while having a high business credit score is important, it’s not the only factor that lenders and others will use to assess your creditworthiness. Debt-to-income ratio, annual revenue, and personal credit score may also be used in addition to your business credit score and report.
How to improve your Score?
As previously discussed, maintaining a high business credit score is necessary to receive the best interest rates, the lowest insurance premiums, and to open up more funding opportunities for your business. To improve your business credit score, the first step is to make sure that you’ve established credit with the big three (Experian, Equifax, and Dun & Bradstreet). You also need to apply for your EIN and D-U-N-S number if you haven’t already.
Don’t stop there, though. To get your company on the radar of the credit bureaus, you must have open accounts specifically for your business. This could include a business phone line, business credit cards, and a business bank account. Opening a trade line with a vendor is an easy way to raise your score, provided you make your payments on time. Your credit score could also get an additional boost when you pay off your debts early.
Small business loans can also help lift your credit score when paid as agreed or paid off early. However, if you haven’t yet established business credit, your business loan options may be limited. Consider applying for a line of credit or another form of funding that doesn’t require a business credit score to improve your credit profile. Also, remember that not all lenders report to the credit bureaus, so ask the lender before accepting the offer.
Finally, monitoring your business credit is a smart move for business owners. This allows you to track your progress as well as identify errors that are dragging your score down.
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