Business credit scores, also known as commercial credit scores, are those used by lenders to determine whether you will be financially responsible enough to pay back a loan. Usually, these scores fall between 300 and 850, and they go up as you prove yourself as a dependable borrower.
How Do Credit Agencies Determine Business Credit Scores?
Business credit scores like personal FICO scores are determined by the three main credit reporting agencies, TransUnion, Equifax, and Experian. These companies collect data about all consumers and businesses in the United States.
The information these agencies gather includes public records, court filings, liens, mortgages, loans, accounts in default, and inquiries into your credit files.
Every time your business applies for credit with a bank or any other lender, they send an inquiry to one of these companies, who then report back to them on your financial history.
How Can You Better a Poor Credit Score?
1. Eliminate any errors in your records
Mistakes in your report can lower your business credit score. If you notice any error in your score affecting your credit rating, you can dispute it with the credit reporting agencies. This process is often quicker than dealing directly with lenders.
The three major credit bureaus are TransUnion, Experian, and Equifax. To dispute an error on your report, visit their respective websites and follow the links to dispute any errors you find.
2. Don’t miss payments
The most important thing to do is avoid missing payments on any type of bill. Paying late will negatively affect your scores with all three major credit bureaus and could reduce your score by as much as 100 points. This means that if you have a good score of 650, it could drop down to 550 or lower if you have a late payment or two on your record.
3. Report all successful payments
Update all successful payments so that the agency includes them in your record. This way, you improve your score by offsetting the few delayed payments lowering it.
4. Credit utilization
Your credit utilization rate is the amount of debt you have in relation to your available credit. Credit card companies want to see a low balance on your account, not because they’re trying to be nice, but because it indicates that you are managing money well and paying off bills on time.
Low credit utilization rates help boost business credit scores. This is hugely beneficial for small businesses that need lines of credit (such as loans) to grow their business.
A business credit score is an important metric of your business’s overall creditworthiness. It comes into play when you apply for loans and lines of credit, so it can be a valuable indicator of how likely you are to default on a loan. If your score is low, follow the above best practices to boost it back up to where it should be.