Business Credit Score: What it is and its Importance

Business Credit Score: What it is and its Importance

  • August 15, 2022
  • By REIL Capital

If you’re a business owner, chances are you already have an idea of what a business credit score is. However, there may be some important aspects you’ve overlooked or need some more clarification about. In this article, we’ll tackle the importance of having a business credit score and how having a good score is beneficial to your company.

 

What is a Business Credit Score?

A business credit score indicates the financial capability of the company to receive financing. This will depend on the company’s history of repayment with funders, as well as their credit obligations.

Credit scores are just one of the important aspects that funders will be assessed when you’re trying to qualify for their funding. Most business credit scores are commonly ranked on a scale of 0-100.

 

Why You Need a Good Business Credit Score

When your business has a good credit score, you’re essentially waving a green flag not just to funders but also to consumers because of the overall standing.

Acquiring a good credit score puts you at an advantage when you plan to get funding for your business. Additionally, insurance rates can potentially be lower when your credit score is excellent.

When communicating with suppliers, they would also take a glance at your credit score before they offer any agreement. If your credit score isn’t up to their standards, then it may be difficult to negotiate with them under your terms.

 

The Difference Between Personal Credit Scores and Business Credit Scores

Obviously, personal credit scores and business credit scores are different even just by basing on their names. However, do you know exactly what sets these two credit scores apart from each other? Here are key differences between the two:

Credit scores can be accessed publicly

Unlike personal credit scores wherein it can only be accessed in certain instances, credit scores can be accessed by anyone to see where the business would be ranked.

Different factors determine credit scores

Personal credit scores are assessed through different factors such as payment history, debt, credit mix, new credit, and the general length of credit history. Meanwhile, credit scores are determined by the company’s age of credit and payment history, debt usage, size of the company, and industry risk.

A smaller scale

Credit scores fall on a scale of 0-100 for businesses whereas the scale for personal credit scores ranges from 300-850.

Your Employer Identification Number is tied to your business credit score

Your credit score is not tied to your Social Security but instead to an Employer Identification Number (EIN). This is done so your personal financial information remains private while you establish your credit score. An EIN is provided to businesses that are legally registered.

 

How are Business Credit Scores Calculated?

Credit scores are calculated under important factors; similarly to personal credit scores, they consider your payment history upon calculating the score. Additionally, they also take note of how long your business has been operating, the longer your business remains operational, the higher the credit score is.

 

How to Improve Your Credit Score

Not satisfied with your current credit score? Here are simple ways for you to improve your business credit score and have a better chance of acquiring funding and connecting with suppliers and potential partners.

Monitor

Keep an eye on your credit score from time to time to ensure that you wouldn’t be surprised if it suddenly drops or increases. 

Avoid delayed payments

Just like personal credit scores, you want to make sure you pay your bills early or on time as this will greatly impact your business’scredit history. 

Utilize credit responsibly and regularly

Use your credit in a responsible manner and as much as you can. The more often you use it and actually pay on time, the better you’ll build your credit score.

Refrain from maxing out credit

Experts recommend utilizing your credit to a certain extent–below 30 percent of your total credit for best results.

 

How REIL Can Help

REIL offers various types of funding for your business. What sets us different from others is that we streamlined the whole application process and made it available online, providing hassle-free short-term funding for small businesses. Apply now!

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