If you know about personal credit scores, then you know how crucial it is to have a good business credit score. If NO, you can see here more about it. You can’t run your business entirely on personal capital investment. You need secured loans, unsecured loans, credit limits, etc from banks and other financial institutions.
But how does the bank know if they should grant you the loan or not? That’s where the business credit score comes in. This guide will help you understand it better.
What Is Business Credit Score?
A business credit score is the same as the personal credit score in many ways. Just as your personal credit score is based on your personal finances, the business credit score is a score that assesses your credibility in paying business loans on time. It is based on your credit history, how much credit you borrowed in the past, from which banks and financial institutions you got the credit, if you paid it on time, etc.
In simple words, it is a score to assess whether any bank or financial institution should grant you credit in the future for business purposes or not. Lenders and creditors can have a quick look at your business credit score and judge if you are a potential borrower or not. The higher the business credit score, the better your chances of getting credit. It is measured on a scale of 1-100.
Advantages of a Good Business Credit Score
If you have always settled your credit on time, you may reap its benefits with a good business credit score. The benefits include:
- You get the business credits at lower rates.
- Creditors and investors seem happy with a company that has a good business credit score.
- Access the facility of lower insurance premiums.
- You may not need to provide a personal guarantee for a business loan.
How To Build and Establish a Good Business Credit Score?
Operating a business is no easy task and most entrepreneurs entirely miss out on the idea of building and establishing a good business credit score, which is very important. You can do so in the following ways-
- Make Your Business Visible
Whether you are a partnership firm, an LLC, or a sole proprietorship firm, you must get your business registered so the credit agencies can track you.
- Work With Credit Reporting Vendors
Start asking your vendors if they report the payments to the credit bureaus. Deal with the ones who do. However, this may not be necessary.
- Get a Business Bank Account
You must have a business bank account and business debit or ATM card to track timely payments to the lenders.
- Make Timely Payments
Don’t lag behind on your dues. If possible, pay them earlier than the due date. It will help improvise your credit score.
If you are planning on procuring business credit in the near future, you must check your business credit score. There are several agencies like Equifax, Dun and Bradstreet, and Experian that keep your data. Once you know your score, try to improve it if you need to.