What is a business credit score?

Small business credit scores are similar to personal credit scores, except they are business-specific ratings. A small business credit score is important to a business owner and to the businesses that interact with that small business, such as salespeople and suppliers.

What are Business Credit Scores?

Small business credit scores rank creditworthiness. Lenders, vendors, suppliers, customers and others can check business credit scores. Often they do that before deciding to do business with a company.

There are three major credit reporting agencies: Dun & Bradstreet, Experian, and Equifax. Small business owners can check their business credit reports, as well as the business credit scores of other entities. Sellers and suppliers often check business credit scores before extending credit, especially to a new customer.

How do business credit reports differ from personal credit reports?

You keep your personal and business finances separate. Business credit scores and personal credit cards are also separate, with one exception:

FICO SBSS (Small Business Scoring Service)

The FICO SBSS uses business credit reports and a personal credit report of the owner or owners and additional financial data to determine creditworthiness. The FICO SBSS is required by the Small Business Administration (SBA), as well as by banks, credit unions, and other lenders. You will need this to get an SBA 7(a) loan. If you are going to apply for the SBA 7(a) loan, you will need a personal credit score of 600 or better. The FICO SBSS will be a number from 1-300, with 140 needed for the SBA 7(a) loan.

Why is a business credit report important?

Credit scores are extremely important in the business world. Here are places where good business credit scores make an impact:

Get financing – you can get a higher loan and a better interest rate with good credit. Obtain credit from vendor and vendor credit reports. Companies can check the business credit scores of other companies. Insurance providers evaluate your credit risk, which is another reason to build strong business credit.

READ MORE: Better Credit Gets Your Business Up to 20 Times the Money Borrowed, Report Says

What Factors Affect a Business Credit Score?

The same factors that affect personal credit scores affect business credit scores. You can keep your personal score in the high/good range by keeping your personal finances in order. As a small business owner, you can keep your business credit record within the good/low risk range and achieve a good business credit score with these practices.

Good payment history

Build your company’s credit. Pay bills early or by the due date. That includes any business loan, your business insurance bill, and your business expenses, such as utilities.

Use credit

Use different types of credit, such as small loans and business credit cards, to prepare separate credit records with a mix. Build business credit, but don’t exceed your credit limit. Small businesses need to keep an eye on the relationship between what is owed and how much is available to borrow.

Establishing trade credit

Small business owners should start building a good history with sellers and suppliers with small purchases that are paid off early or on time.

Keep Personal Credit Scores Good

Your company’s financial history is not affected by your personal credit scores, except by the FICO SBSS rating, as discussed earlier. That’s when personal FICO score range affects a business owner’s FICO SBSS rating.

Stay out of the legal trouble

If you’ve reported tax issues, such as failure to pay state and/or labor taxes, your business credit report may be affected. The big three business credit bureaus look at a company’s payment history and other financial records, as well as looking at public records. Tax or legal issues, such as liens on a property, affect a business owner’s credit and business credit risk score.

What is a good credit score for a small business?

Business credit reports have a few key differences. Personal credit scores range from 0 to 1000; a business credit profile typically has a score from 0 to 100.

Business credit scores differ by the value of the number assigned. Typically, credit scores for businesses range on a scale of 0 to 100, with 0 to 10 for a business failure. The FICO SBSS score is a number from 0 to 300.

Dun & Bradstreet assigns a Paydex rating of 0-100. When a company pays bills on time or early, the business credit history would be 80 points and above. If a company pays 60 days or more late, the rating would be from 0-49.

Experian uses business data to determine a business risk factor called Intelliscore Plus, also on a scale of 0 to 100. Business credit scores above 76 are considered “low risk” for lending or granting credit. Scores 1 to 10 are considered “high risk” and poor.

The FICO SBSS score is on a scale of 0 to 300. To get the SBA 7(a) small business loan, you need a score of 140 or higher. Other small business lenders want a score of at least 160.

Basically, if you’re looking at your own or other business credit scores, you need to know what the number means. How is the business credit score calculated and what does it mean? A successful business has credit – no matter how many – which translates to a “good” rating.

READ MORE: Why Your Business Credit Score Matters When Applying for a Small Business Loan

How can you check your business credit score?

You can check your business credit score by going to one of the big three: Dun & Bradstreet, Experian and/or Experian. You can also check your FICO score. All this is possible at no cost.

If you want to control another company, you pay a nominal fee.

How to build your business credit score?

When building business credit, attention is paid to details, especially keeping track of due dates for accounts. With a bad payment history, you will have a hard time getting business loans and building your business.

Build your business credit score by making timely payments and obtaining credit. Keep your personal score high by paying on time if you have a personal loan, such as a car or credit card payment.

In short, build good credit habits in both business and personal finance.

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