business credit scoresYou’ve likely heard of credit scores and how important they are to your everyday life, but did you know that your business has credit scores as well? Your company’s business credit scores can greatly impact your corporate future in a number of ways. Your business credit scores may come into play if you need financing for your company, such as a business credit card or loan, and could impact your insurance rates as well. Plus, since they are public records, potential customers or companies who are considering partnering with you could view your business credit scores and make a judgement on you based on what they see. Read on to learn what goes into a business credit score, how to check yours and how to ensure your business credit scores are constantly improving or being maintained.

What makes business credit scores different?

Much like consumer credit, business credit has its own credit reports and credit scores. Business credit reports are in-depth records of how your company has handled debt, bills and other credit payments. Three main credit bureaus maintain these credit reports: Equifax, Experian and Dun & Bradstreet. These credit bureaus use the information in your credit report to give you a grade. This is your credit score, and it represents how likely you are to repay your debt on time.

While you have one credit report per bureau, each bureau generates several different credit scores. Each type of score evaluates the information using different formulas. For example, one formula might make payment history 30% of its grade, while another will weigh it as 35%. If you track your consumer credit scores, this information probably sounds familiar. There are three main differences between business and consumer credit scores, including the credit bureaus (in consumer credit scores, TransUnion replaces Dun & Bradstreet), the credit score number range and the criteria used to determine credit scores.

Unlike consumer credit scores, which generally range from 300 to 850, business credit scores usually range from 0 to 100 — so they wind up looking like percentage grades. For most scores on the 0 to 100 scale, 80 or above indicates that your company is low-risk for business loans. However, business credit scores use all kinds of criteria to evaluate creditworthiness. For example, a score may be based on how quickly your company repays debt (like the Dun & Bradstreet PAYDEX, which we will discuss later). Many aspects are business specific, like industry (some are riskier than others), company size, trade payment history and corporate family. Other factors are the same as consumer credit scores, like credit utilization ratio and credit history.

How to check your business credit reports and scores

Unlike consumer credit reports, businesses aren’t guaranteed a free credit report from each credit bureau every 12 months. You’ll likely need to spend some money to get your credit reports and scores from each credit bureau individually. While this might seem like an unnecessary expense, combing over your credit reports can pay off because it isn’t unusual for there to be mistakes that, once corrected, can quickly improve your credit scores. Plus, it’s one of the best ways to catch and report fraud, which can save you money and improve your credit scores in the long run.

Ways to improve your business credit scores

If you’ve checked your scores and they aren’t where you’d like them to be, you’ll want to know what you can do to raise them up. To make your business credit scores better, it’s important to first identify what’s holding them back. Looking through your credit reports, you should be able to self-diagnose the issue. Do you not have much of a business credit history? Have you made late payments or missed one or two altogether? Or perhaps you’ll notice incorrect items, like credit accounts you never opened or public records that don’t correspond with your business history. Whatever the problem, you can do the following three things to not only improve, but perfect your business credit scores:

1. Build and diversify your business credit history

One way you’ll influence your business credit scores is through your account diversity. That is, having a variety of types of debt (e.g., both installment and revolving credit) gives lenders more confidence in your ability to repay loans. If you don’t already have a business credit card, you should get one. Not only is it a smart move to separate your company’s finances from your personal for practical reasons, but many business credit cards offer perks tailored to business owners as well as the ability to earn rewards that will help you save money. Early on, you’ll likely need to use your consumer credit scores to apply for a card. However, you may be able to get a business credit card with your business scores after you build credit history. Finally, you’ll want to maintain a low credit utilization ratio on your business credit card (or cards) to improve your business credit scores.

As a note, if you find that your business and personal credit aren’t good enough to obtain a business credit card, you might want to consider using a secured credit card to improve your personal credit scores and get your finances headed in the right direction so you can get a business credit card in the future.

2. Pay on time (or early)

Late payments are certain to damage your credit scores, just as they do with consumer credit. But did you know that, for some business credit scores, on-time payment isn’t good enough? The PAYDEX score from Dun & Bradstreet is based on how promptly you repay your debt; however, paying on time may not net you the highest score. To get a perfect score, you’ll need to pay your bills in advance. You can also help improve your credit scores through payment history by requesting that your creditors report your activity to the credit bureaus.

If you already have a business credit card and you are finding it difficult to keep up with payments because of a high APR, you may want to make a balance transfer to a card with a 0% intro APR. Some business credit cards offer low intro APR periods for balance transfers (though they do charge balance transfer fees), giving you time to focus on making payments which solely cover your principal debt rather than any of that money going to interest.

3. Correct mistakes

As we mentioned earlier, we recommend checking your business credit reports at least once every 12 months. Check your credit report from each of the three credit bureaus once a year and report any errors you spot to the corresponding credit bureau. For example, your business credit report might mistakenly include a similarly named business or one that was formerly at your company’s address. Even a seemingly small error, like a misspelling, can impact your business credit scores. If you notice an error, reach out to the business credit bureau that maintains the report. While the laws are less strict about corporate protection than consumer protection, therefore making it difficult to promise a specific time frame, the credit bureaus are generally responsive to errors. Making corrections can be time-consuming, but it’s a great way to improve your credit scores.

Now that you know what business credit scores are, how important they are to your company and the ways you can improve them, you may want to sign up for a business credit card to build and improve your business credit history. To find the right business credit card for you, take a look at our business credit card reviews.

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