Business Credit Scores and Why They Matter
If you are applying for a loan, your business credit score informs lenders of your likelihood of repaying. One way your credit score is tracked is through your credit card for your business. The better the score, the higher the likelihood that you will get better terms when applying for an insurance policy or a small business loan.
Business lenders use your business credit score when reviewing your credit application. Higher scores indicate a borrower that will pay back loans and pay bills on time. Securing financing is easier with a good credit score so that you can get a loan or a line of credit with the best available terms. Strong business credit also helps you get greater amounts of financing. A good score could also get lower insurance rates. You could also use your business credit score to create a separate credit profile to divide personal and business finances.
Business credit scores range between zero and 100. Unlike consumer credit scores which use algorithms from FICO to calculate a credit score, business scores do not follow an industry standard. Because of this, they vary between bureaus. The business credit reports will only include accounts under the company name. Payments made to banks, vendors, business credit card issuers, and data-gathering trade associations are verified by third parties and are used to calculate the credit score. Be aware, though, that lenders and credit card issuers will still review your personal credit history before extending credit and terms to you. While you can get a free personal credit report from each major credit bureau once every year, there are no free business credit reports. All business credit report information is public while personal credit reports are limited to viewing by you and select parties.
Since your business credit score is so important, make sure to protect it. Data breaches can result in your business experiencing a financial loss, which makes it harder to get financing. The owner’s personal creditworthiness then gets factored into loan applications. If you have been affected by a data breach, you can freeze your personal credit to make it more difficult for someone to open accounts in your name. If a freeze is too much, fraud alerts can be placed instead, which forces creditors to verify your identity before opening new accounts. At minimum, you should monitor your credit reports to look for credit inquiries, balances that do not match your statements for your credit cards, and new accounts you did not open.