In today’s fast-paced economic landscape, having a good business credit score is essential for success. It can open your doors to sustainable growth and financial stability. However, building one takes a lot of work.
It takes time and a good understanding of how business credit works. You need to learn how to pay close attention to your finances. It’s also important that you build responsible habits when it comes to paying off your debts.
Learning how to manage your business credit is hard, especially when you don’t know where to start. If you want to maximize your business credit, NCH can get you started at the right place.
In this blog, we’ll explore the basics of business credit and what you need to do to get a good business credit.
How Does Business Credit Work?
A business credit score reflects how creditworthy businesses are. It tells lenders how likely you are to repay the money you loan them. Like personal credit, the higher your score, the better your chances of getting a loan.
When you use a business credit card or loan, the vendor reports your borrowing and payment habits to the credit bureaus. Using this information, the credit bureaus rate your creditworthiness from 0 to 100.
There are three credit bureaus responsible for gathering your credit report:
Dun & Bradstreet
They use the information they’ve gathered from vendors to calculate your credit score. Sometimes, they also include information from public records, like your financial reports, in their calculation.
What Does A Good Business Credit Score Look Like?
Typically, the higher your score is, the better. However, each bureau uses different credit scores for varying reasons.
Dun & Bradstreet
Dun & Bradstreet uses three types of credit scores; the Paydex score, failure score, and delinquency score.
Paydex Score: This score measures the risk of late payments. Scores of 80 and above mean low risk. On the other hand, scores ranging from 50 to 70 means there’s a moderate risk of delayed payment.
Failure Score: If your business has a lower failure score, there’s a high chance of closure or bankruptcy within 12 months.
Delinquency Score: A low delinquency score means you’re not at high risk of severely delayed payments or bankruptcy.
Equifax’s reports offer three assessments; payment index, credit risk score, and business failure score.
Payment Index: This rating measures your past payment history. If you have a score of 90, it means you pay your bills on time.
Credit Risk Score: This assesses the likelihood of your business failing to pay your loan on time.
Business Failure Score: This grades the likelihood of your startup closing within 12 months. The higher your score is, the higher the risk of failure.
Experian offers one of the most comprehensive credit score reports out of the three bureaus. Besides a business credit score and financial stability risk rating, their reports also include payment trends and more.
Four Reasons Why You Need A Good Business Credit Score
There are plenty of ways a good credit score can help your business, including the following:
Funding is one of the most common dilemmas startups face. It’s easier to expand your business when you have more capital. You can get more funding and other benefits with a good credit score.
For example, you can get lower interest rates and higher credit limits from other vendors. Although lenders consider other factors, a good credit score can help you get the loan you need.
Protects Your Personal Credit
When you create a separate credit line for your business, you can protect your personal credit line. According to a survey from 2022, 61% of entrepreneurs that own a personal credit card use it to fund their business expenses.
You must complete your payment deadlines to ensure your credit score is protected. Additionally, most personal credit cards aren’t enough to be used as capital.
Increases The Value of Your Startup
Your business credit score is a transferable asset. If you decide to sell your startup later on, its good credit score can make it more valuable to buyers.
Get Better Deals
Lenders love working with businesses that have excellent credit scores. It’s a signifier that they can trust and rely on them. They’ll give you better rates and deals if they want to turn you into a loyal customer.
What Do I Need to Get Good Business Credit Scores?
There are four ways you can improve your credit score:
Pay On Time
If you already have a business credit card or loan, you must ensure that you make on-time payments. This is one of the essential factors lenders note when making a credit report.
Look For Vendors That Can Help
Although most lenders report to the credit bureaus mentioned earlier, some don’t. So, if you want a comprehensive credit history to improve your score, look for vendors that report to them.
Know Your Score
The best way you can improve your rating is by knowing where you are.
Your credit score and profile will give you an idea of what needs improvement. It can also provide insight into any red flags or mistakes you’ve made in the past and how you can correct them.
It’s common for some people to find errors in their business credit profiles. Although all of the credit bureaus work hard to ensure that their data is updated, it would be best if you take the time to double-check things.
If you need some help understanding your business credit profile, consider working with a credit expert.
Build A Good Credit Score Today
NCH’s credit experts have helped thousands of businesses in Nevada build good business credit. When you work with us, you can improve your credit score quickly. Our team will work closely with you in developing solutions that will turn your startup into a suitable candidate for loans.
Find out more about our business credit and profile services by visiting our website here.