What is Business Credit?
Just like you have a personal credit score, your business also has a credit score. Business credit is a business’s own record of its financial responsibilities that others will look for to check if the company is financially healthy to lend money or do business with.
Typically, the ranking is from 0-100. The higher the number, the lower your calculated risk. Maintaining a score of 80 or higher is a good rule of thumb.
Common factors that impact your small business credit are public records, such as liens or bankruptcies, credit, such as outstanding balances and payment habits, and demographic information, such as business size and years on file.
Business Credit vs. Personal Credit
Business credit and personal credit are two different things. A good personal credit score can help someone qualify for greater financial responsibility in their personal life, such as a mortgage or an auto loan. Business credit scores and ratings may help do the same thing for a company. But business credit reflects only the financial health of the business, not that of the owner’s personal finances.
Perks of a Good Business Credit Score
1. Your personal credit score is protected.
If you are a business owner, you should never use your personal credit for business purposes. This is a business credit rule of thumb. Businesses operate on a large scale, so business purchases and/or expenses can be severely big. Using your personal credit for these may increase your credit utilization ratio which tells how much of your credit limit is being used. As always, to have and maintain a good credit score, you must always aim for a low credit utilization ratio.
2. Business financing is easier and faster.
A good credit score opens the way for people to get loans much easier. This also applies to businesses. If your business should need a loan to urgently solve cash problems, then a good business credit will escalate the process. Lenders also use this as a parameter if they should loan you money or not.
3. Suppliers will give you better repayment and credit terms.
A good and healthy business credit score will position you as a reliable and trustworthy client in the eyes of your suppliers. Consequently, they will more likely give you better repayment terms and trade credit. If your business heavily relies on big equipment, inventories, and other major purchases, then this is good for you.
Building up Small Business Credit
All businesses who have applied for a loan and/or leased their space most likely have a business credit profile. Credit agencies provide summary reports for these businesses which you can look up without charges. But, if you want to have full business reports, then you may pay to subscribe.
Paying for a subscription is not harmful because checking your credit reports at least every half of the year is vital to your business’ financial health status. In this way, errors may be checked, and so is missing financial information. In the long run, this will help your business against identity theft. Make sure to report or even dispute some inaccuracies you will notice.
To build a good business credit score, make the best effort to always pay on time as doing so will result in positive payment history. Also checking your credit reports from time to time will help since accuracy will be counterchecked.
In Credit Repair for Home, we will help you further build and maintain a good business credit score. If you are a parent who owns a business and dreams of giving their family a good home, our company will be your partner!
Let us talk.