Courtney C. Lipsey A good business credit score is necessary if you want financing to pay your expenses. Most lenders will look at your credit score when reviewing your consumer credit or loan application. It is important to improve your credit score depending on your financial situation.
Even if your score is low, you will likely get worse terms than businesses with higher scores. This could be a problem for your business as the funds could be too costly, and it may take a while to repay your debt.
Continue reading to learn more about the advantages of having a high business credit score.
What Is Considered a Good Credit Score for Business?
First, let’s define what a good credit score means.
While most business credit scores are between 0 and 100, different credit bureaus have scoring systems. We’ll review the top business credit reporting agencies and what they consider a good score for business credit.
- Experian: Experian will check your credit score for business credit. You’ll need to be in the 76–100 range. This is considered a low-risk score. The opposite end of this scale is 1-10, considered a high-risk score. You should improve your score if you are within this range.
- Equifax: Equifax’s scoring process works slightly differently from other bureaus. Equifax assigns businesses three scores on their credit reports. These scores are used to measure the following:
- Traditional Credit Risk Score: This score ranges between 100 and 992 and provides an overview of your company’s credit history.
- Payment Index: This score is a measure of your payment history. It can range from 0 to 100. Your score will be closer to 100 if you have paid your bills on time and managed your finances well.
- Business Failure Score: This score is calculated by Equifax’s Business Credit Reports, which rates your business on the likelihood of you going under or dissolving. This score can range from 1,000 to 1000.
- FICO SBSS: You should aim for a higher credit score than a lower one. FICO SBSS scores can range from 0 up 300. You’ll need a score of 160 or higher to be eligible for bank financing.
- Dun & Bradstreet PAYDEX – Your PAYDEX Score is between 0-100. However, you want to score between 80 and 100 to be considered good. A score of 0 to 49 will be deemed a poor rating. You’ll need timely payments to improve your rating.
Why having a good business credit score matters:
It will be easier to qualify for a loan.
Excellent credit can help you get a small loan or credit line for your business.
Lenders won’t lend money to companies with poor credit histories because they fear they might be unable to pay their bills on time. A business with good credit will likely be able to get a loan fast and easily.
You’ll Receive Better Loan Terms
Lenders typically offer more favorable loan terms to businesses that have demonstrated their creditworthiness.
You could use your credit score to get lower interest rates and credit limits. A better terms package can be a huge benefit to your business. A lower interest rate will help your business save thousands in interest payments.
It Protects your Finances
You can separate your business and personal financial obligations with business credit. Your company’s debts will be included in your small business credit reports. This will protect your credit rating from any financial problems your business might face and vice versa.
It’s important to check your credit history. Lenders may request that you review your credit report and personal credit score before you apply for a loan.
Get Better Terms From Suppliers
This will make it easier to apply for financing if you have established good business credit. This is also a good sign for suppliers’ credit terms.
Credit is an option when you need to buy additional equipment or inventory. Suppliers will be more willing to accept prepayment if they trust your business’s financial stability and ability to repay debts on time.
Access Cash for Growth and Expansion
Your business may be able to meet its financial obligations without borrowing, but what happens if you want to expand?
A loan can help you expand your business beyond what you initially thought. A loan can be a great way to get your business, whether it involves new equipment or inventory.
How your business can achieve a strong credit score:
You now know how important it is to maintain a high business credit score. Make sure you have good financial habits. You won’t be in a position to increase or maintain your credit score if you don’t monitor your finances.
- Pay your bills on time: It is a priority that you pay all of your bills on time and in full. Credit bureaus will assess your financial management and reflect your credit score.
- You can reduce existing debt. Although it may be difficult, you must pay your financial obligations to improve your score. This means repaying vendors and paying off any outstanding credit card debt.
- You should check your scores frequently. Set a reminder on the phone or make a note in your planner for periodic credit checks. You can identify any errors or problems in your credit report by reviewing it.
- Handle Tax Liens. A tax lien can have a serious impact on your credit score. You should immediately pay the tax lien in full. You may also want to file a subordination or withdrawal request, which will help remove the tax lien from public records.
