In order to have good business credit, it is crucial to understand what credit and credit reports are. Having a good credit score for your business can open doors for new opportunities and increase your chances of being approved for a loan or obtaining alternative financing. Here is some information on credit reports for beginners and a few diverse ways to find your score.
Building Your Business Credit Score
Similar to personal credit scores, you credit score for your business can be affected by factors not under your control. For example, you cannot control how long your business has been in business. However, there are ways to build your credit such as ensuring you make all your payments on time as well as not overusing credit. Having high credit can also be advantageous when it comes to lending terms because lenders will likely be more lenient if you can prove you are trustworthy and pay all your business expenses on time. It also gives you power and rights when it comes to negotiating repayment terms.
How to Calculate Your Credit Score
Business credit measures how creditworthy your business is. There are a few ways to calculate your credit score for your business including personal FICO scores, Equifax and Dun & Bradstreet. These all differ in how they calculate your score because they use different ranges and criteria.
The three main credit bureaus are Experian, Equifax and Dun & Bradstreet. Dun & Bradstreet uses a PAYDEX score to measure risk. You should strive to have a score between 80 and 100 because this signifies you have a low risk of missing payments. The credit score itself ranges from 1 to 5 with 1 being the best score. This number is calculated by matching you company with other ones like it and compares how often you pay on time to how often they do.
Equifax business scores use the size of your business, credit limits on credit accounts, how long your oldest financial account has been open and information on invoices to provide you a credit risk score between 101 and 992. They also calculate your business failure score which represents how likely your business is to close. Even though credit reports for your business are not free, your score is important to know as a business owner and vital if you are planning on applying for a small business loan in the near future.
Building your credit score can be advantageous because a high business credit equates to more flexible terms and greater opportunities to obtain funding for growing your business. There are a few ways to find out your credit score including through Experian, Equifax and Dun & Bradstreet.