What is a Business Credit Score?

Do you know your business credit score? Most of us are familiar with our personal credit score, but business owners can also have a second credit score that lenders look at to evaluate your eligibility for loans or other financial services.

Keeping your personal and business credit separate is one of the first rules of business. Get the two mixed up, and you could be personally liable for any debts your company may incur. Plus, by relying on a company credit card, you can give other employees access to your line of credit and provide purchasing power to other team members.

Let’s take a few minutes to explain the nature and importance of a business credit score and show how to build your business credit.

What is a Business Credit Score?

Like your personal credit or FICO score, your business credit score is a numeric representation of your company’s overall creditworthiness. 

In other words, your business credit score tells other financial institutions whether your business can pay back debts in a timely fashion. A high credit score indicates that your company has a history of paying its bills on time.

The Difference Between Your Personal Credit Scores and Your Business Credit Scores

Business credit scores differ from personal credit scores in several specific ways. 

First, while FICO credit scores for individuals range from 350 to 850, business credit scores range from 0 to 100.

Second, consumer credit bureaus follow a specific algorithm to calculate a FICO score. Business credit bureaus don’t follow any standard, which means your business credit score can vary between business credit bureaus.

Third, while you can generally obtain your consumer credit reports for free, business credit scores are only available for purchase from one of the three major business credit bureaus: Experian, Dun & Bradstreet, and Equifax.

Fourth, while consumer credit scores are private, business credit scores are available to anyone willing to pay for a report.

Your personal credit history typically has no bearing on your business credit score, but keep in mind that some financial institutions may evaluate your personal credit history when they’re considering your application for a business loan. 

Is a Business Credit Score Necessary?

Should you ever need a small business loan or to open a credit line, your lender will ask for your credit score. Your personal credit score can be used to obtain a business loan, but you’ll need a very high score to pull this off. 

Having a solid business credit score offers advantages including:

  • Greater access to business loans or lines of credit
  • Lower interest rates on your loans
  • Lower insurance rates in some instances

Keep in mind that as your business grows, so will your financial needs, including your insurance. Establishing a strong business credit score early in the game is crucial since a high credit score will ensure that you have access to the funds you need to grow your business.

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How to Establish and Build Business Credit

Most lending agencies consider a “good” business credit score to be anything over 75. Wondering how to build business credit? 

It generally takes one or two years before your company generates a meaningful credit score. But there are things you can do to establish and build business credit early in the game, and this can be extraordinarily helpful as your business grows.

5 Steps to Building Business Credit

Building business credit has less to do with what you do as a business and more to do with how you conduct your business. 

Most business owners can build a strong business credit score through these five simple practices:

  • Legally register your business
  • Use a business credit card and business bank account
  • Work with vendors that report payments to the credit bureaus
  • Make payments on time or early
  • Monitor your credit score

Keep in mind that this isn’t a list of optional steps. Try to use the above tips as a checklist and make these steps work together. For example, once you register your business, always use your business bank account for all of your transactions, including expenses like utility bills or other overheads.

These steps can keep your business “on the map,” so to speak, and by paying your bills on time, you can ensure that you stay on top of your company’s credit score and maintain a positive credit history. 

How to Monitor Business Credit

Every business owner should take steps to monitor their business credit. But how can you monitor business credit? Unfortunately, the internet is full of “free” offers, but it’s important to avoid scams. Instead, you should contact the three major business credit bureaus directly:

In some cases, your D&B Report may be available for free, but otherwise, you can expect to pay a nominal fee to obtain your business credit reports.

You should check your business credit score several times per year. The best practice would be to check your credit score once per quarter, even if your credit score has historically been high. 

You may want to check your credit score even more frequently if you anticipate a need for a loan or other financial service shortly. Admittedly, this can be time-consuming, but the payoff is the availability of a loan when you need it most.

Additionally, your business credit score is a matter of public record, at least to anyone willing to pay for the report. 

Maintaining positive credit is a way of preserving your company’s public reputation in the business and financial community, which can be important for securing loans and forming partnerships with other businesses and vendors.

This publicity raises a logical question: What can you do if your business credit score is less than 75? Can you improve your business credit score? 

You can. 

The best way is to return to the checklist above and make sure you pay all of your bills on time or early.

You can also raise your credit score by taking on additional debt—even if your business doesn’t need money right now. Be careful with this approach, as it has the potential to snowball into debt you can’t manage. By taking on small debts and paying them back promptly, you can increase your credit score over time.

At the same time, avoid maxing out those business credit cards. Business credit bureaus prefer to see businesses that only use around 25% of their available credit. 

You can avoid maxing out your cards by adding additional business credit cards, preventing you from negatively impacting your business credit score. 

Disputing Errors on Your Business Credit

As you monitor your business credit score, you’re bound to run across errors and anomalies. In some cases, a business credit bureau can mix up your business with someone else’s, which could negatively impact your credit history.

You might start by checking your business credit score from one or both of the other bureaus. If the error only appears on one credit report, it strongly suggests that the bureau is in error.

Your next step is to contact the business credit bureau directly. You may have to demonstrate that an error was made by providing proof that you’ve made a payment on time, but if you’ve kept clear and diligent records of your income and expenses, this should be fairly straightforward.

However, keep in mind that it can take several weeks for a particular credit agency to remove these errors from your credit history. In some cases, it can take several months. This hesitancy highlights the importance of checking your credit history regularly, as you’ll be better equipped to address errors as they arise.

Helping Your Business Thrive

Your business credit score can either open the door to new opportunities or place limits on the health and growth of your business. Keeping tabs on this score can ensure that your business has access to all of the resources it needs to thrive.

Join The Friday Fund to stay in the loop with all the resources and information you need to make great business decisions so you can focus on your continued business growth.

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