money talks but credit holds conversations…
A business credit score is used by lenders to determine if a company is creditworthy. When you apply for business finance, the lender considers your level of credit risk. A company credit score functions similarly to a personal credit score; however, each credit score is unique and has no bearing on the other. Your company’s credit score is more than just a number. In fact, it can have a significant impact on the success of your company.
A company with a low credit score may be granted business credit, but at a higher interest rate and with a lesser spending limit.
Opportunities frequently arise that cost more than the cash you have available, requiring you to use credit to take advantage of them. Your business activities may stall and your income potential may be hampered if you are unable to obtain lender permission. This score influences repayment terms and interest rates, as well as whether or not you are approved for a loan.
The first step in using credit to expand your business is to understand how it works and how it is calculated so that you can take full advantage of it. To ensure that your score is as high as possible, first learn what your present score is and then manage it proactively. You should safeguard your credit score in the same way that you would any other critical aspect of your organization.
How to calculate a business credit score
Your business credit score is calculated by analyzing a variety of data about your company and finances. The following elements are used to generate corporate credit scores, according to U.S. News and World Report:
- Credit utilization ratio
- Payment history
- Age of credit history
- Existing debt
- Public records
- Company size
- Industry risk
- Number of recent credit inquiries
The credit bureau determines the exact interpretation of the score. Dunn & Bradstreet, for example, considers scores above 80 to be good credit risks and scores below 49 to be terrible credit risks. Experian classifies scores above 76 as low risks and scores below 25 as high or medium-high risks. Many business owners are taken aback when they first discover their business credit score because it is based on a scale of 0 to 100 points rather than the 300 to 850 point scale used for personal credit.
How to Increase your business credit score
Many of the methods for raising your company credit score are similar to those for raising personal credit ratings. Once you have established company credit, you should protect your score and actively try to improve it in order to obtain credit for future growth.
- Make timely payments to your creditors: Your company’s credit score is heavily influenced by your payment history with past debtors.
- Make On-Time Payments on Your Bills: The next and simplest step is to begin paying your bills on time. While this may seem obvious, it’s not uncommon to get caught up in your day-to-day activities and allow bookkeeping tasks to slip through the gaps. Create a good system and be conscientious about timing. Late payments lower your credit score. Pay at least once a month, or more frequently if possible.
- Create a New Account: If you don’t have many business accounts, open one or two, such as a business loan or a business credit card. Because lenders don’t have a history to evaluate when deciding whether or not to approve your loan request, having no credit isn’t much better than having bad credit. Make sure you refund any money you borrow or credit you use, and find lenders who will not allow you to borrow more than you can afford to repay. Having credit accessible but not using it is a plus for credit reporting companies.
- Please report any incorrect information: Begin by carefully analyzing the reports and looking for errors. If you notice anything incorrect on your report, such as an overdue debt that you paid, contact the credit reporting bureau and dispute it. After then, the lender has 30 days to verify the information in your file or it will be deleted. This is an important step toward improving your score.
To summarize, it takes a lot to keep your credit score on track if you aren’t utilizing the correct tools, but with the right tools, you can be sure to make your payments on time, manage your expenses and debts, and easily report any anomalies in your report.
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