Home East africa economy What is a business credit score and how does it work?

What is a business credit score and how does it work?

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A business credit score gives credit agencies, loan issuers, and vendors or suppliers a general idea of ​​how reliable your borrowing is. Much like your personal credit score, a higher business credit score indicates to interested parties that you are more creditworthy. If you are a business owner and want to build strong business credit, read on to learn more.

What is a business credit score?

A business credit score is exactly what it appears to be: a credit score that applies to businesses rather than individuals. Typically, a business’s credit scores are determined using information from a business credit report, which may include details about the business, such as the number of employees in the business. ” a company, historical company data, payment history, account information, amounts owed, etc.

When it comes to business credit scores, you’ll probably notice right away that they’re not in the same numerical range as personal credit scores. Most business credit scores are rated on a scale of 0 to 100, while ratings for businesses using the FICO Small Business Rating Service (FICO SBSS) range from 0 to 300.

Benefits of a business credit score

Building a strong business credit rating can help small business owners in several different ways. For starters, having a business credit score can help you access credit for your business without relying on your own personal credit. This means that you may be able to access capital to grow your business without using your own personal credit cards or a personal loan.

Not only that, but there are distinct advantages to keeping your personal and business credit and finances completely separate. For starters, separating personal and business transactions can be extremely helpful when it comes to filing your taxes each year. Since the U.S. tax system requires that you keep your personal and business finances separate if you plan to deduct expenses, this separation can also help ensure that your personal assets are not exploited against you if your business is in financial trouble. .

Differences between personal and professional credit scores

There are many differences between your personal credit score and your business credit score, including:

Business credit scores are on a smaller scale

While personal credit scores are generally on a scale of 300 to 850, business credit scores are often offered on a scale of 1 to 100.

Anyone Can Check a Business Credit Score

Although personal credit scores are private and can only be accessed in specific situations, anyone can look at a business credit score to see how a business is performing.

Business credit scores are determined using different factors

Business credit scores are determined using the following factors: payment history, age of credit history, debt and debt utilization, industry risk, and business size. Personal credit scores are determined using different factors: payment history, amount of debt, new credit, credit composition, and average length of credit history.

Business credit scores use your employer identification number (EIN)

While your personal credit score is linked to your Social Security number, your business credit score is linked to an EIN. This helps you keep your personal financial information confidential while you build and maintain your business credit score.

How are business credit scores calculated?

Just like your personal credit score, the most important factor that makes up your business credit score is your payment history – whether you are making enough on-time payments on your debts. Business credit scores also take into account the age of your business, and you can achieve a higher score the longer you have been in the business. Debt and debt usage are also considered when establishing a business credit score, as well as the type of industry you are in and the size of your business.

Keep in mind that unlike personal credit scores which may take multiple factors into account, some business credit scores consider only one. With the Dun & Bradstreet PAYDEX Commercial Credit Score, for example, the only factor they take into account is your payment history.

How to Check Your Business Credit Score

While it’s easy to get a free overview of your personal credit score using various platforms, the same can’t be said for business credit scores. In some cases, you will need to pay to see a business credit score for your own business or any other.

Here are some details on how to check your business credit score with each of the credit reporting agencies that determine business credit scores.

Dun & Bradstreet

Consider signing up with Dun & Bradstreet Credit Signal, which allows you to monitor your Dun & Bradstreet business credit score for changes over time. This free program lets you know when your business profile is viewed and you have the option to view four Dun & Bradstreet Credit Ratings and Ratings for a 14-day period.

Equifax

Equifax allows you to order a single business credit report for $ 99.95. However, you can also order a set of reports for five companies for $ 399.95. You can explore these options on the Equifax website.

Experian Intelliscore Plus

Experian also allows you to check your business credit score and your business credit report, although the amount you will pay depends on the plan you select. You can view your business credit report for as little as $ 39.95, but you can pay for an annual plan that lets you monitor your business credit reports and get a score of $ 189 per year. . The Experian website offers more details on how to get started.

How to improve your business credit

Improving your business credit involves many of the same steps you would take to increase your personal credit score. If your goal is to achieve the best possible credit score for your business, immediately consider the following actions:

Pay your bills and business expenses early or on time

Your payment history will likely impact your business credit score more than anything else. Hence, you need to pay all your business expenses and bills early or on time.

Establish types of business credit that report transactions

Also, keep in mind that not all business creditors report business lines and lines of credit. If you need to start creating business credit, a business credit card application is a good place to start.

Use credit regularly and responsibly

Use your business credit as much as you can and know that you will slowly build up business credit as you borrow money and pay it back on time and on good terms.

Monitor your business credit score

Just as you’ll want to keep tabs on your personal credit score over time, you should monitor your business credit score for changes and updates.

Don’t Maximize Your Business Credit

Experian recommends keeping your credit usage on business credit cards and other lines of credit below 30% for best results.