One key aspect that most company owners underrate today is their business credit score. Essentially, this is a type of record that other vendors, lenders, financial organizations, and investors use to gauge how financially responsible and stable your business is. Just like your personal credit, it helps to determine whether or not you’re a good candidate to do business with or lend money to.
There are several factors that credit bureaus take into consideration when calculating your business credit. Among the most important ones include payment habits, outstanding loan balances, business size, bankruptcy records, credit, and years on file. If you wish to learn more about these factors, check out Crediful.com.
What makes business credit so important?
As we mentioned earlier, anyone serious about doing business with you will first want to understand what kind of company you run, and how responsible you are with finances. This means any bank, potential investors, and partners will need to know your creditworthiness before they can commit to support or work with you.
As you can imagine, having a bad track record will mean lost or delayed opportunities of getting financed and boosted growth. What’s more, your bad credit could also mean you only qualify for expensive loans due to higher interest loans or unfavorable terms.
Learning how to build and maintain a good business credit is, therefore, something every business owner needs to invest in if they are to avoid the above-mentioned costly affairs.
How top bureaus calculate your business credit
Currently, three major business credit bureaus have been tasked with the responsibility of assigning credit ratings to business. They include Equifax, Dun & Bradstreet, and Experian. Each of them uses different indicators to calculate your business credit score as follows:
Equifax considers three key factors, including your business’s ability to make timely payments, the probability of the business becoming delinquent, and its likelihood to fail. On the other hand, Dun & Bradstreet banks majorly on your payment history to calculate the score. Finally, Experian uses a more sophisticated formula that takes into consideration several factors like payment history, years in business, and any new lines of credit dropped recently.
Based on these guidelines, it’s easy to come up with a practical strategy for building and maintaining a positive credit score that helps you grow your business. All you need is to avoid making the same mistakes that credit bureaus capitalize on to punish untrustworthy companies.
How to build and maintain a good business credit
Start by checking your current score
If you haven’t been consciously building your business credit, chances are high that you already have some issues that need dealing with first. The most effective way to identify them is to request a credit report from any of the three agencies we described earlier.
Unlike the case with personal credit reports where credit bureaus are obliged to provide at least one free report per year to individuals, you need to pay a fee to access your business report. Take a keen look to see your business through the lens of potential lenders and investors. If you have any unpaid loans or bad credit that could be harming your image, be sure to clear them as quickly as possible to get back into the good books of the bureaus.
Apply for credit card
If you’ve just set up your company, strive to build your credit profile quickly to enable you access higher credit limits when your business finally takes off. For this, you need accounts that report your payments to business credit bureaus. This is where a business credit card comes in handy.
While these cards often get a bad rap from a section of the public and some financial analysts, they can be a lifesaver when used appropriately. In addition to helping you grow your business and its credit score, most also come with excellent reward systems that are sure to benefit your business down the road.
Always make your payments on time
One of the surest ways to bring down your credit score is to delay payments and getting reported by vendors and creditors on the same to the bureaus. Always try to make your payment in good time, including paying off debts early whenever possible. The idea is to create the image that your business is in control of its finances and that you respect other businesses.
Building business credit takes quite some time. This makes it a good idea to start the process immediately after setting up your business. Sure, you might not need credit when starting, but that excellent score could mean so much to the survival or growth of your business to the next level.