Business credit scores are just as important as personal credit scores when it comes to obtaining financing for your business. Lenders use business credit scores to assess the risk of lending money to a business, and a good credit score can help you get better terms on loans and lines of credit.
What is a Business Credit Score?
A business credit score is a number that lenders use to assess the creditworthiness of a business. It is similar to a personal credit score, but it is calculated using different factors. business ideas range from 0 to 100, with a higher score indicating a lower risk of default.
What Factors Affect Business Credit Scores?
Business credit scores are affected a number of factors, including:
- Payment history: This is the most important factor in determining a business credit score. Lenders want to see that a business has a history of paying its bills on time.
- Credit utilization: This is the amount of credit that a business is using compared to its available credit. Lenders prefer to see businesses that are using less than 30% of their available credit.
- Length of credit history: Lenders prefer businesses that have a long history of borrowing and repaying debt.
- Type of credit: Lenders consider the type of credit that a business has used in the past. For example, loans are considered to be a more reliable form of credit than credit cards.
- Public record information: This includes bankruptcies, tax liens, and judgments. Lenders want to see that a business has a clean public record.
How to Get a Business Credit Score
There are three major business credit reporting agencies: Dun & Bradstreet, Experian, and Equifax. You can get your business credit score from any of these agencies.
- Dun & Bradstreet: You can get your Dun & Bradstreet credit score for free creating a free account on their website.
- Experian: You can get your Experian credit score for free once a month signing up for their free credit monitoring service.
- Equifax: You can get your Equifax credit score for free once a year visiting their website and requesting your credit report.
How to Improve Your Business Credit Score
There are a number of things you can do to improve your business credit score:
- Pay your bills on time: This is the most important thing you can do to improve your credit score.
- Keep your credit utilization low: Aim to keep your credit utilization below 30%.
- Lengthen your credit history: If you have a short credit history, consider opening a business credit card and using it responsibly.
- Use different types of credit: Don’t just rely on one type of credit. Use a variety of credit products, such as loans and credit cards.
- Avoid negative public record information: If you have any negative public record information, take steps to correct it.
Business Credit Scores and Financing
A good business credit score can help you get better terms on financing, such as lower interest rates and longer repayment terms. It can also help you get approved for financing that you might not otherwise qualify for.
If you are looking to improve your business credit score, there are a number of resources available to help you. You can speak with a business credit consultant, read books and articles on business credit, or join a business credit association.
By taking the time to understand business credit scores and how to improve them, you can improve your chances of getting the financing you need to grow your business.
Here are some additional tips for improving your business credit score:
- Get your business credit report from each of the three major credit reporting agencies and review it for errors. If you find any errors, dispute them immediately.
- Consider opening a business credit card and using it responsibly. Pay your bill on time each month and keep your credit utilization low.
- Apply for business loans or lines of credit only when you need them. Don’t overextend yourself financially.
- Make sure your business address and contact information are up to date on your credit report.
- Be patient. It takes time to build a good business credit score. Don’t get discouraged if your score doesn’t improve overnight.