The Basics of Business Credit Scores:
These scores are vital when you go to get a small business loan or an insurance policy to use for your business.
The following is some information that you need to know about your business credit score and how it can impact you in the future:
What is a Business Credit Score?
Your business credit score is similar to your FICO credit score, except it’s for your business. Your business’s credit score determines how well your business pays back the money it borrows and helps determine your future financial health. Essentially, a good credit score says that your business pays its bills on time and a bad credit score says that you are often late to pay your bills.
There are a few key differences between your personal credit scores and the ones your business has. The following are the key differences:
- Range: Your personal FICO score will range from 300 to 850, while your business’s credit score will range from 0 to 100. Keeping your payments on time will be the best thing that your business can do to keep your business’s credit score close to 100 as possible.
- Standardization: The 0 to 100 credit score for businesses is useful as it makes the process of assigning a business credit score easy and uniform across all businesses in all industries.
- Data: Generally your business’s credit score along with other information like the financial accounts that your business has as under the company name as well as other lender scores. Your personal and business credits will not be tied together.
- Access: By law, you always have rights to a free copy of your credit scores once every 12 months from all three credit unions, including TransUnion, Equifax, and Experian. You can get your personal FICO score from several different credit card companies free of charge as well.
- Privacy: Only you and a select group of parties have a right to see your credit scores and information freely. Otherwise, your information is protected and safe from public view. If you desire credit scores and information on other companies, you will have to pay to have access to it.
Why Do I Need a Business Credit Score?
Business credit scores are used in a variety of different situations, including the following:
- It will be easier to get financing for your business if your business has a higher credit score which shows that you are reliable and pay your bills on time.
- You can get lower monthly/annual rates for insurances that your company needs in order to protect your assets and operate successfully.
- You will have your business and personal finances separated, so if your business has a poor credit score, it doesn’t mean your personal credit score is also ruined.
How Are Business Credit Scores Calculated?
Business scores are calculated by using a scale found at Paydex.com that ranks the business from 0 to 100. The business credit scores use information reported to each credit bureau and other data-collecting agencies. You will get a business credit score along with a “commercial credit score” and a “financial stress score” to help lenders determine if they wish to lend money to your business and if you are eligible for the lowest possible interest rates.
For more information on how you can track and improve your business’s credit score, please feel free to contact us. We are always here to help.
