Most business owners are aware of their personal creditworthiness, but a Study suggests 60% of them do not know their creditworthiness – however, this number is crucial for securing supplier contracts and qualifying for loans on competitive terms. Here’s what you need to know about getting your business credit score and improving it.
What is a Business Credit Score?
In the same way that your personal credit score quantifies the status of your personal finances, a business credit score reflects your company’s finances. The score determines your creditworthiness and is calculated based on the credit information of your suppliers and lenders, court records and debt collection agencies.
There are three major business credit agencies – Dun & Bradstreet, Experian, and Equifax – and each one provides its own scores and different calculation methods. In general, however, your business credit score will range from 0 to 100, with 100 being the highest score for creditworthiness.
These agencies also offer reports that, unlike personal credit scores, are publicly available to anyone willing to pay for them, including vendors or potential business partners who may be considering whether or not to work with you.
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These reports provide background information about your company, such as: B. Your tax reporting status, number of employees, property status and relevant banking information including your history of bankruptcies, foreclosures, mortgages and litigation. It’s worth noting that lenders can also view your personal credit report, so the two types of credit scores are not exactly separated from each other.
The advantage of having a strong business credit score is that you can get larger loans with preferential interest rates and terms. In fact, 45% of small business borrowers who get a “no” from their creditors are rejected because of their creditworthiness. According to a 2019 study cited by Nerdwallet.
How to Create a Business Credit Score
You won’t automatically receive a business credit rating just for opening a business. A score builds up over time – although there is no guarantee that it will. To make sure that you are building a Business Credit Score with all three major offices, here are the steps you need to take:
- Set up your company as an independent company legal person, like a partnership, cooperation or LLC.
- Open a bank account on behalf of the company.
- Receive a separate business phone number.
- Get one Employee identification number from the IRS.
- For Dun & Bradstreet specifically, you will also need to submit an application Duns numberthat the agency uses to track your business.
How Can You Improve Your Credit Score?
In many ways, improving your business credit score is similar to improving your personal credit score. By paying your bills, setting up lines of credit, and checking your credit reports for errors (which unfortunately are common), your score can grow over time. Use of creditor how much of your company’s credit lines you actually use, along with the age of those lines of credit, will also count towards your score.
Unfortunately, there is a cost for your business to keep track of your credit history as business credit reports, unlike personal credit scores, are not free:
- Dun & Bradstreet’s The cheapest deal that actually shows you your creditworthiness is the CreditBuilder Plus product, which costs $ 149 per month (this includes a DUNS number for your business if you don’t already have one).
- Equifax charges $ 99.95 for a single report. (You can order one Here.)
- Experian sold a CreditScore report for $ 39.95This includes your Experian Business Credit Score.
