A business credit score assesses a company’s creditworthiness. The scale runs from 0 to 100. While the major business credit reporting agencies—Experian, Equifax, and Dun & Bradstreet—employ different criteria to construct company credit scores, they all use a few common ones. Unlike personal credit ratings, your business credit score is public, which means it may be seen by potential lenders, vendors, customers, and even your nosy neighbor, Bruce.
These frequent indicators are used by Experian, Equifax, and Dun & Bradstreet when reporting business credit scores:
Years in the industry
Credit lines applied for in the last 9 months
Credit lines that have been opened in the recent six months
Payment history for the preceding 12 months is available upon request.
The total number of late payments
A good business credit score can assist you in the following ways:
Obtain small business loans, lines of credit, and credit cards by meeting the requirements.
Obtain better loan rates and terms.
Create a safety net that allows you to take out emergency loans or lines of credit quickly if you run into financial difficulties.
Establish relationships with new merchants and providers.
Bad credit is the most common reason that traditional lenders reject most small business entrepreneurs. When it comes to small company loans and financing, having a good credit score helps you get better rates and terms. And that’s only the start of the advantages.
A solid business credit score provides a safety net by making it simple to get emergency loans or lines of credit if your company experiences financial difficulties. Furthermore, when your credit is good, vendors and suppliers are more willing to do business with you.
How to Improve Your Business Credit
You’ve probably found your way here because you’ve wondered, “How do I get decent business credit?” Since 2019, we’ve assisted over 1000 startups in obtaining funding. We’ve learnt a thing or two about how to establish, build, and restore business credit as a result of our efforts. Here’s what you need to do, no matter where you are in the process.
Create a Business Credit Score
These are the initial steps in establishing business credit for your company.
FORM A LEGAL ENTITY FOR YOUR BUSINESS
To be awarded a business credit score, your organization must be a corporation or a limited liability company (LLC). Establishing your firm as a legally separate entity, such as an S-corp or LLC, can safeguard your personal assets from business obligations in addition to helping you create business credit. Without the cost of a lawyer, LegalZoom can handle this for you.
OPEN A BUSINESS ACCOUNT WITH A BANK
You should keep your business and personal money separate once you’ve formally separated from your company. It’s easier to view vital financial indicators for a business including income, financial assets, and expenses if you open a separate bank account for it.
You’re ready to start building your business credit score after you’ve completed the two necessary procedures to create business credit.
Boost your company’s credit score
The standards for business credit scores differ per lender, so as much as we wish we could give you a magic number, we can’t (sorry). You’ll profit from boosting your business credit score, whether it’s to help you qualify for a new loan product or to get better rates and conditions.
EXPENSES SHOULD BE PAID FROM A BUSINESS BANK ACCOUNT.
Only use your company bank account to pay for business costs. This strategy will aid in the development of business credit, the streamlining of bookkeeping, and the protection of personal assets from business obligations.
MAKE APPROPRIATE PAYMENTS ON TIME
If you just remember one piece of business credit advice, make it this one. Making on-time payments is the most effective strategy to increase, maintain, and repair your company credit score. It’s the bedrock of credit information and a reliable predictor of creditworthiness. Here are three measures you can take to make sure you get paid on time:
1.Enroll in auto-pay: Most recurring invoices allow you to have the money automatically debited from a bank account of your choice.
2.Make use of bill-paying reminders:
You may either enter your bills into your calendar or utilize software like Microsoft Money or Quicken to send you reminders.
3.Make a bill-paying appointment:
Make a regular time slot in your calendar every month to sit down and formally pay your bills.
OPEN A CREDIT CARD FOR YOUR BUSINESS
You’re ready to take control of your business credit once you’ve mastered making timely payments.
In two ways, getting a company credit card will help you build business credit. For starters, it will boost your track record of timely payments. Second, it will lower your credit utilization ratio, or the difference between how much credit your company has and how much it is utilizing. Bonus: Many business credit cards provide rewards, allowing you to turn your business expenses into profit.
INCREASE THE AMOUNT OF CREDIT AVAILABLE (TAKING OUT A LOAN, ETC.)
Remember how important it is to make payments on time? Creditworthiness is demonstrated when you have a history of repaying a debt on schedule. As a result, you’ll have a better chance of qualifying for or obtaining better rates in the future. You may locate a loan that meets your business needs while also helping you boost your business credit score with a range of loan alternatives, such as equipment loans or business lines of credit.
How to Find Out What Your Business’s Credit Score Is
Your company has a credit rating (whether you check it or not). Your score can (and will) be found by any firm, lender, investor, or partner, therefore it’s best to be proactive and check it first. You can then determine whether your credit score is enough or whether you need to enhance or fix it.
You can learn about your business credit for free or for a fee. Let’s take a look at both, starting with the free option.
Where Can I Get Free Credit Reports for My Business?
The CreditSignal service from Dun & Bradstreet (D&B) notifies you when your credit scores or reports change. You will, however, have to pay to view your complete credit report. “CreditSignal only reveals when your D&B scores and ratings have changed and informs you when your company credit file has been purchased,” according to their website.
Use a credit monitoring service like Nav to keep track of your finances. Signing up for a free account with Nav will give you access to a summary of your Experian Intelliscore and Dun & Bradstreet Paydex reports. These reports include company credit grades, summary reports, Experian personal credit scores, and free resources to assist you in continuing to establish stronger business credit.
Where Can I Get Detailed Credit Reports for My Business?
The three major corporate credit reporting companies provide complete credit reports. These are the most in-depth reports available. However, they are all costly:
D&B is the company that generates your score and report. Before you can see your credit report, you’ll need to get a DUNS number and sign up for a CreditBuilder Plus account.
Equifax Business: Purchase your Equifax report, Equifax Business Credit Risk Score, and Equifax Business Failure Score individually or in a bundle.
Experian Business: Access your current Experian score and credit report by subscribing or making one-time payments.
If you have bad personal credit, how can you create business credit?
Your personal credit and corporate credit aren’t linked, but they can be. Lenders will likely look at your personal credit to examine how you manage debt if you’re a lone entrepreneur with minimal business expertise.
Even if you have bad personal credit, you can follow many of the corporate credit-building best practices:
Obtain an EIN number.
Create a company credit file with one of the main credit bureaus.
Set up vendor tradelines (essentials lines of credit with specific vendors and suppliers)
Make an application for a company credit card.
Take out a short-term working capital loan.
What is a decent credit score for a business?
Although different credit agencies utilize different scoring algorithms, company credit ratings typically range from 0 to 100. A credit score of 75 or higher is regarded great, but most lenders won’t look twice if your score is under 50.
Personal credit scores, which typically range from 300 to 850, do not have this dispersion.
How can you quickly establish company credit?
Credit repair isn’t a sprint or a one-shot deal; it’s a lifelong, business-long endeavor. You’ll need to focus on the tiny details over time, such as debt management and regular payments. Making your business credit a priority from the beginning is the easiest method to improve it.