Small business credit scores are similar to personal credit scores, except that they are specifically for business ratings. A small business credit score is important to a business owner and to the businesses that interact with that small business, such as vendors and suppliers.
What are business credit scores?
Small business credit scores assign a numerical value to creditworthiness. Lenders, vendors, suppliers, customers and others can check business credit ratings. They often do this before deciding to do business with a company.
There are three main business credit bureaus: Dun & Bradstreet, Experian and Equifax. Small business owners can check their credit reports, as well as the credit scores of other entities. Vendors and suppliers often check companies’ credit ratings before extending credit, especially to a new customer.
How Business Credit Reports Differ From Personal Credit Reports
You keep your personal and professional finances separate. Business credit scores and personal credit cards are also separate, with one exception:
FICO SBSS (Small Business Rating Service)
The FICO SBSS uses business credit reports and a personal credit report of the owner or owners, along with additional financial data, to determine creditworthiness. The FICO SBSS is required by the Small Business Administration (SBA), as well as banks, credit unions, and other lenders. You need it 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 between 1 and 300, with 140 being required for the SBA 7(a) loan.
Why is a business credit report important?
Credit scores are extremely important in the business world. Here are the places where good business credit scores have an impact:
- Get financing – you can get a bigger loan and better interest rate with good credit.
- Obtain extended credit from vendor and vendor credit reports.
- Companies can check the credit ratings of other companies.
- Insurers assess your credit risk, which is another reason to establish strong business credit.
READ MORE: Better credit can get your business up to 20 times the loan amount, 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 line. As a small business owner, you can keep your business credit report in the good/low risk range and achieve a good business credit score with these practices.
Good payment history
Build your business credit. Pay your bills on or before the due date. This includes any business loans, your business insurance bill, and business expenses, such as utilities.
Use different types of credit, such as small loans and business credit cards, to build separate credit records with a mix. Build up business credit, but don’t go over your credit limit. Small businesses need to keep an eye on the ratio of what is owed to the amount available to borrow.
Establish business credit
Small business owners should start building a good history with vendors and suppliers with small purchases that get paid early or on time.
Maintain good personal credit scores
Your business financial history is not affected by your personal credit scores, except with the FICO SBSS score, as noted earlier. This is when the range of personal FICO scores impacts a business owner’s FICO SBSS score.
Avoid legal trouble
If you have reported tax issues, such as non-payment of state taxes and/or employment taxes, this could impact your business credit report. The three major business credit bureaus review a company’s payment history and other financial records, as well as public records. If there are tax or legal issues such as liens on a property, it will impact the business owner’s credit and the business’ credit risk score.
What is a good credit score for a small business?
Corporate credit reports have a few key differences. Personal credit scores range from 0 to 1000; a business credit profile will typically have a score of 0-100.
Business credit scores differ by the value of the assigned number. Typically, business credit scores range from 0 to 100, with 0 to 10 being a failing business rating. The FICO SBSS score will be a number between 0 and 300.
Dun & Bradstreet assigns a Paydex score from 0 to 100. When a company pays its bills on time or early, the company’s credit history would be 80+ points. If a company pays 60 days or more in arrears, the rating would be 0-49.
Experian uses commercial data to establish a commercial 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. credit. Scores of 1 to 10 are considered “high risk” and bad.
The FICO SBSS score is on a scale of 0 to 300. To get the SBA 7(a) small business loan, you will need a score of 140 or higher. Other small business lenders will want a score of at least 160.
In short, when looking at your own credit ratings or those of other companies, you need to know what the number means. How is a business credit score calculated and what does it mean? A successful business will have a credit rating – no matter how many – that translates to a “good” rating.
READ MORE: Why Your Business Credit Score Matters When Applying For A Small Business Loan
How to check your business credit rating?
You can check your business credit score by visiting one of the big three – Dun & Bradstreet, Experian and/or Experian. You can also check your FICO score. All of this can be done at no cost.
If you want to verify another company, you will have to pay a nominal fee.
How to build your business credit score?
Establishing business credit requires careful attention to detail, especially keeping track of invoice due dates. With a poor payment history, you will find it difficult to obtain business loans and grow your business.
Build your business credit score by making timely payments and establishing credit. Keep your personal score high by making timely payments if you have a personal loan, such as a car or credit card payment.
In short, establish good credit habits in business and personal finance.
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