Every business needs a good credit score to demonstrate its financial trustworthiness in the market. It functions similarly to personal credit scores, but it specifically pertains to the performance of the company. Business lenders and suppliers use various scoring systems to evaluate potential financial risks. The business credit score determines access to optimal financing options while offering reduced interest rates and superior trade credit arrangements.
Here in this article, we will describe how to identify an excellent business credit score and scoring model evaluations, the significance of the business credit report, and the procedures to build or strengthen your business credit profile. Your company achieves multiple financial advantages when you keep your business credit score robust. Let’s get started.
What is a good business credit score?
One important factor in the success of any business is knowing what a good credit score is. After all, a high business credit score can result in improved trade credit, lower interest rates, and access to the capital you need to expand your company.
While low credit ratings are seen as risky by lenders, good (or high) company credit scores are viewed as low risk by creditors and lenders. As a result, you must maintain your company’s credit score and comprehend the specifics of what makes a high credit score.
Below are the four primary business credit scoring systems, along with a favorable business credit score range:
- Dun & Bradstreet PAYDEX: On a scale of 0 to 100, lenders prefer business credit scores of 80+.
- Intelliscore Plus from Experian: On a scale of 0 to 100, lenders prefer a company credit score of 76+.
- Equifax Business Credit Report: On a scale of 101 to 992, lenders prefer a business credit score of 570+.
- FICO’s Small Business Score: On a scale of 0 to 300, lenders prefer a business credit score of 140 or higher.
Your personal credit score is included in your FICO Small Business Scoring Service (SBSS), resulting in a hybrid score. This score has emerged as a crucial component in evaluating and determining the business credit validity of small enterprises, as the owner and the enterprise are frequently connected.
What makes your business credit report important?
The need to have a high personal credit score may be clear to you, but the necessity of having a high business credit score may not be as clear. You may still be using your personal credit to secure essential business loans if your small firm is just getting started. Here are some points describing the importance of a business credit report:
- Account separation: Create a layer of separation between your personal and corporate funds by creating a business credit profile. As a result, it becomes simpler for you to keep accurate records of your spending for taxation.
- Increased borrowing capacity: You may be eligible for higher loan amounts if you have a solid business credit history. This can help with things like remodeling or growing a business.
- Easier access to financing: Maintaining a strong credit rating might improve your chances of obtaining small business loans or other credit lines with advantageous interest rates.
- Improved insurance rates: As you know, small-company insurance may be costly. One strategy to maintain low rates is to have a high corporate credit score.
Keep in mind that lenders and suppliers will look up your company’s credit to:
- Choose to work with your business.
- Decide on your small company financing.
- Calculate interest rates and insurance premiums.
- Decide on the terms of payment.
- If you fall behind, decide whether to transfer your small company business bank account to a third-party collection agency.
The performance of your small business, as well as how other people perceive you, can be significantly impacted by your business credit report. Long-term benefits for both you and your company will result from taking the time to educate yourself about business credit.
How can you establish a business credit score?
By following the six stages below, you can learn how to establish company credit from scratch.
Register your business and obtain an EIN
You must first register your company with your Secretary of State in order to create a business credit file. During this phase, you will decide on your company’s name and business structure (corporation, LLC, etc.).
If you’re ready to start your business easily, register your company online with IncParadise today to make this process easier across the U.S.
After registering your company, you should ask the IRS for an Employer Identification Number (EIN). An EIN can be thought of as your company’s equivalent of a Social Security number. It is a number that the government and organizations for business credit reporting can use to identify your firm.
Registering for an EIN is simple and cost-free. To begin the process, check your eligibility and apply on the IRS website.
Another option is to get this service from IncParadise, and they will take care of submitting the EIN application with all the information required.
Get a D-U-N-S number
After obtaining an EIN, you can register your business and obtain a D-U-N-S number by contacting D&B. D&B differentiates companies by using a nine-digit identification number called a D-U-N-S number.
Registering your business with D&B is free. However, receiving your D-U-N-S number may take up to 30 days.
Set up accounts with vendors that report payment history
The next stage in establishing business credit is to make accounts with creditors, who will submit your company’s payment history to the business credit bureaus. Furthermore, if your company does not have an established credit history, you may have trouble getting business financing. Even if your company has no credit history, some vendors are open to offering net 30, 60, or even 90-day terms.
Just keep in mind that creating a vendor account is not sufficient. If a supplier reports payment history to one or more agencies for business credit reporting, you should be careful to build credit with them.
Acquire a business credit card
Opening a business credit card with an issuer that notifies the business credit bureaus of account activity is another method of building business credit. If your personal credit score is high, obtaining approval for a new business credit card could be straightforward.
Keeping your personal and company costs apart is another benefit of using a business credit card. Additionally, you can locate a business credit card that allows you to receive cash back on regular business spending or vacation incentives.
Make timely or early payments to creditors
To establish strong company credit, you must make your credit payments on schedule. Certain business credit ratings, like D&B’s PAYDEX Score, are solely determined by your business’s payment history.
If your business credit history is full of late payments, having a strong business credit score is hard. Conversely, enhancing your business credit report with favorable payment experiences may raise your credit score.
Avoid excessive use of business credit
Avoiding excessive spending on any account is the first and best piece of advice I can give. Just like maxing out personal credit lines can hurt your credit score, using business credit close to the limit can be detrimental. You should try to keep your credit utilization ratio below 30% and, ideally, even lower.
Sustain valuable trade credit lines
Trade credit is highly ranked in terms of overall importance. Trade credit, which is the credit provided to you by vendors and suppliers, is sometimes the only way to keep the company afloat. Proper use of this fundamental financial instrument will positively affect your credit score. Forming strong relationships with these vendors and suppliers and (preferably) paying them on time will help you get the needed products and services without delay, thus enhancing your positive credit score balance.
Ensure your credit profile is error-free
Each major credit reporting organization in the United States has information on millions of businesses or customers. Because of the enormous volume of data exchanged between credit bureaus and creditors, there is much opportunity for inaccuracy. The issue may get worse if business identity theft occurs.
You should contact the relevant credit bureau to dispute any errors on a credit report. Regarding individuals, the Fair Credit Reporting Act (FCRA) mandates that consumer credit bureaus look into such accusations and either confirm the accuracy of the contested information or delete it within 30 days. Although businesses are exempt from the FCRA, business credit bureaus will also look into disputes over the accuracy of credit reports. Credit reporting errors result in low credit scores on both personal and commercial levels. Therefore, it is important to check all credit reports—personal and business finances—to ensure no errors.
Comprehension of the positive factors of a good business credit score could determine its success as a small business. Once you make up your mind about how to build business credit ratings, you are giving your business a solid foundation for the years to come.
FAQs on Business Credit Score
The following are some answers to the common questions related to company credit scores.
How often is my business credit score updated?
Your company’s credit score is refreshed every 30 to 60 days, with variations depending on the credit bureau and data reporting.
How long does it take to improve my business credit score?
Depending on your current credit situation, the time required to enhance your score may vary, but it might take anywhere from a few months to over a year to attain significant improvement in the score.
Are there any penalties for having a low business credit score?
Having a business credit score low does not result in direct penalties; rather, it can lead to higher loan interest rates, increased insurance premiums, and less favorable terms from suppliers and lenders.
Can my business credit score be affected by my business structure?
The legal setup of your business can impact credit. Corporations and LLCs are separate from personal credit, but sole proprietorships are linked to the owner’s credit.
Your Business Finances Deserve Better — Choose Cheqly
As a small business owner, Cheqly is a reliable choice for managing your business finances. It’s easy to set up an account, with clear pricing and no hidden fees. With secure features and tools to handle payments and expenses, it helps you keep everything organized and under control.
Keep your business account simple—open a Cheqly account today.