Your Business Credit Score: An Overview
If you’ve dealt with personal credit while getting a loan or dealing with debt consolidation, you understand how this number is used. With business credit the concept is similar, but the rules are a little different. The score given to your company also can have a greater impact on your fiscal efforts, so it’s important to understand the basics of how it all works and what it all means.
Why It Matters
Your business credit score is an oversimplified representation of your creditworthiness. Sometimes the number doesn’t feel fair, especially to young entrepreneurs who don’t have much credit history. Unfortunately, in a competitive market where financiers have to make quick decisions and snap judgments, there’s no escaping the importance of your score.
This credit number also has a smaller range than a personal score, going from 0-100 instead of 300-850. This means personal credit offers a little more wiggle room, especially at the top, than credit pertaining to your business.
The major bureaus have different particulars when it comes to assessing your business credit, but the same general principles apply. Your financial data will be collected and reviewed to establish things such as your debt-to-credit ratio, annual revenue, year-to-year earnings comparisons, etc. Depending on how long your business has been in operation and what data is available, most scores are based solely on details pertaining to your company. However, for those with less than three years of operation or limited information relating to creditworthiness, your personal credit can be used to determine your business score.
As far as where you want your score to be, business owners look to be within the 80-100 range. Below 80 puts you in the “fair credit” class, which won’t preclude you from loans and such, but it might make the terms you get less favorable. Once your credit score falls below 50, banks and lenders will be very hesitant to work with you.
It’s hard to improve your credit score when you don’t know what it is. You should start checking your score every year to be sure everything is in order. It doesn’t happen often, but the scoring companies do occasionally make mistakes, and you don’t want to see your score drop from 85 to 70 because of a clerical error.
With good business credit comes more opportunities for development and growth. Take the time to understand your score and do what you can to keep your credit in good standing.