The creditworthiness of your business is measured by its credit score. This number is issued by Dun & Bradstreet, Experian, Equifax, and FICO SBSS, and is an essential reflection of your company’s payment reliability and timeliness.
Why is Your Business Credit Score Important?
Your company’s overall financial health is of key importance to any lenders, creditors, and partners with whom you wish to do business. Those partners need to be able to trust in your ability to provide the goods or services that you are promising and to to pay back any loans you may apply for. Your financial health can also be a determination of the terms that you are able to negotiate with lenders.
Ultimately, your business credit score is the main way third parties can measure your company’s financial health. It’s typically used by lenders, creditors, and trade partners during various business transactions. Some examples include applying for business loans, leasing, winning contracts, doing business with vendors or suppliers, obtaining net terms with trade partners, or getting better interest and payment rates for business contracts and mortgages.
Businesses in possession of strong credit scores have a much better chance of obtaining the capital that they need to grow compared to those with weak credit scores. Many lenders have minimum credit score requirements in place, and businesses that cannot meet that threshold won’t be able to secure the loan amounts they seek. Even if your business credit score exceeds the threshold, the stronger your credit score, the better the interest rate or repayment terms you are likely to have extended to you.
Business credit scores are also used as a gauge by suppliers and others who will need to rely on you to pay them in a timely manner. Vendors, landlords, and other stakeholders with whom you will have a financial relationship will look to your past performance with others as an indication of how you are likely to treat them. Have a weak credit score? Even if these trade partners agree to do business with you, they are likely to include terms that will protect their own interests and be less advantageous to you.
How to Interpret Business Credit Scores
Business credit scores generally only go as high as 100, and can fall as low as 0, unlike personal FICO credit scores which can reach as high as 850. As is true in so many other types of grading systems, the higher the score, the better the credit rating is considered to be, though different credit rating agencies have different levels at which they bestow the value judgment of being “good.”
For Equifax a credit score of 90 or above is considered good while Experian considers 7 or above good. Dun & Broadstreet bestows the term “good” on scores of 80 or above, while FICO SBSS (whose highest scoring ranges well above 100) considers a score of 140 or more a good rating.
The higher a business’s credit score, the better their chance of obtaining loans or positive trade terms with vendors and suppliers. This is because the high score reflects a history of making payments on a timely basis rather than being late or delinquent.
Can You Fix A Bad Business Credit Score?
Having a low business credit score can be a reflection of several possible factors. These include
- filing for bankruptcy
- liens against your business
- a poor repayment history filled with delinquent payments or non-payments.
Thin Business Credit Score
Businesses that don’t have a significant history of payments have credit scores that are termed “thin”. A thin score can also contribute to a low credit score.
Having a bad business credit score or a thin credit score works against you when applying for a loan. Lenders are unlikely to provide advantageous terms to businesses with a poor history of repayment. If your business is simply new and doesn’t have a record of either timely payments or delinquencies, many lenders will be hard pressed to take a chance on you. Either situation you find yourself in, it will be well worth the time to build a credit history or repair poor credit. There are ways to do both. Here are several steps you can take that can have a significant impact.
6 Steps to Fix a Business Bad Credit Score:
1. Keep your Business and Personal Finances Separate
You are not your business and your business is not you. Therefore, you should keep separate accounts for your company and for your personal use. This helps to keep track of transactions and obligations for each. And as a result, will also help prevent any mistakes that you make (i.e. delinquent payments) from affecting either your business credit score or your personal credit score.
2. Don’t Fall Behind On Your Bills
When your business makes a purchase or agrees to pay for a service, pay in full (and on time). These actions reflect on your business in a number of ways. Early payments will boost your credit score and trade partners welcome them. Delinquent payments will negatively impact your business’s credit score and have a negative impact on your reputation in general.
3. Develop A Strong Relationship With Your Vendors
Keep in mind that vendors and suppliers are the ones who report on-time or early payments to the credit bureaus. They also are the ones to report late payments. The better your business relationship with those partners, the more likely that they will report your positive actions. And the less likely that they will report delinquencies.
4. Maintain a Low Credit Utilization Ratio
Building credit as a business is just like building personal credit: by establishing a history. One of the fastest ways to build a positive business credit report and score is to get a business credit card. Use it sparingly and stay below 33% of your available credit.
5. Keep Your Eye on Your Numbers
Credit reports change constantly. It’s essential to watch it to make sure that it is an accurate reflection of your payment history. If you find a mistake, act quickly to dispute the error. Each bureau has their own method of disputing claims. Prepare to follow the guidelines within the framework provided by the bureau that is publishing the mistake.
6. Add More Credit Options
Businesses that have thin credit can build their score by establishing lines of credit through a secured business credit card. Secured business credit cards are easy to get as they are backed by a deposit. This is an excellent way to improve your business’s history. Just remember to make your payments promptly.
Positive Credit Scores for Future Success
Having a solid, positive credit score for your business is more than just a report card. It is what can make the difference in your company’s future opportunities for growth. Nurture your business’ credit report. You can do this by keeping organized and dedicated to making on-time or early payments. It’s never too late to repair and rebuild a credit score when mistakes have been made.
If you have questions about building your business credit score, please give this office a call at (360) 778-2901. Or fill out the contact form below.
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