Business Credit Scores, Why You Should Be in Control

what Is a Business Credit Score?

while many business owners pay close attention to their personal credit scores, they often don't realize that a business credit score exists. A business credit score is exactly what it sounds like: a credit score for your business. It's completely separate from your personal credit score and is a comprehensive assessment of your business's financial health and transaction history.

you can access your business credit score through the credit bureaus, and it's a good idea to get in the habit of checking it regularly so you can be strategic about how your business is viewed by lenders.

why business credit scores matter

your business credit score has a direct impact on every aspect of running your business, most notably borrowing. If you look at the terms of a personal business loan, you'll see that it's often contingent on your business credit rating. A low score can mean you're not approved at all, or if you are approved, the interest rate on your business loan will be significantly higher.

the same goes for business credit card limits - a good credit score can get you a high limit, but a poor score can limit your limit or make it harder to get a card at all. If you don't manage your small business credit properly, it can prevent you from getting the funding you need to expand your business.

the difference between personal and business credit

it's important to clearly understand the difference between personal and business credit: personal credit is based on your personal financial history, while business credit is evaluated based on your business's financial position and transaction history.

but here's the catch: your personal credit can affect your business credit, especially if you're a sole proprietor, because you and your business are closely linked, so any late payments or excessive debt in your name can be reflected in your business credit score.

key strategies for managing your business credit score

the key to managing your business finances is consistency, and while there's no quick fix, the following principles can help you avoid score dips and gradually improve your score.

first, keep your repayment history clean. the impact of a late payment lingers longer than you might think, so make sure you're on top of your payment dates.

second, keep your business card spending at a reasonable level. a high spending-to-limit ratio can call your financial health into question.

third, manage your business debt-to-revenue ratio. too much debt relative to revenue can negatively impact your credit score.

special attention for solopreneurs

the most important thing to remember when managing your credit as a sole proprietor is not to separate your personal and business lives - they're both separate and intertwined.

if you're late on a loan in your personal name, your business credit will take a hit, and conversely, if your personal credit is strong but your business sales are unstable or you're late on a loan in your business name, your business credit score will suffer.

the key to managing your business credit rating is to keep both sides in balance.

you might also be interested in our financial management tips and small business support policies.

FAQs

Q1. Where can I find my business credit score?

A1. You can check your business credit score on the websites or apps of credit bureaus, such as NiceScore and AllCredit, some of which are free.

Q2. If I have good personal credit, will my business credit be good?

A2. Not necessarily. While the personal credit of the owner may have an impact, the business's revenue stability and the business name's transaction history are also evaluated separately.

Q3. What are the consequences of a low business credit score?

A3. It can make it harder to get approved for a loan or increase the interest rate on a business loan. It can also affect your business card limits and access to credit with vendors.

Q4. How often should I check my business credit score?

A4. We recommend checking it at least once a quarter. If you're planning to apply for a loan or card, check it ahead of time so you have time to make any necessary adjustments.

Q5. Will one late payment hurt my business credit significantly?

A5. The impact of a late payment on a business depends on the length and amount of the late payment. Long-term, large payments are much more damaging than short-term, small payments. In any case, it's best to avoid late payments.

wrapping up

your business credit score is an important metric that affects all aspects of running your business, from loans, cards, and even vendor credit, so it's important to stay on top of it before you need money in a hurry.

check your business credit score today. let us know in the comments if you have any questions, and if you found this useful, please add a neighbor and subscribe.