Educating yourself on your business credit score and the importance of establishing good credit is a crucial step in achieving success as your company grows. Potential lenders, investors, and partners may look at your business credit score when evaluating your business.

What Is a Business Credit Score and Why Does It Matter?

A business credit score is similar to a personal credit score. Your business credit score indicates whether your company is in good standing to apply for loans in the first place and if so, potentially receive a low-interest loan (because you’re deemed to be less risky). Credit scores fall within a range of 0 to 100. The higher the number, the lower the perceived risk.

One key difference between a personal and business credit score is that business credit scores are publicly available. Since business credit scores are not covered under the Fair Credit Reporting Act, any person is able to view your business credit score without permission.

Overall, If you are looking to get approved for a loan, there are several types of loans you can choose from. Establishing good business credit can be beneficial when working with potential vendors, receiving better rates, having a strong credit score can help long term with saving money and keeping cash flow liquid. Next, we’ll go over different steps to begin establishing credit for your business.

Ways to Establish Credit

The first step in being eligible to establish business credit is to incorporate your business. Incorporating a business or forming an LLC is the best way to ensure that the business is separate from the owner and begins to accumulate its own history.

Once the business is incorporated, you will be able to open a business bank account. Opening a bank account makes a positive difference when managing your business finances. Having a business bank account allows you to collect receipts and write checks for expenses.

You’ll also want to obtain a business credit card. There are a wide variety of options available depending on your needs. If you are feeling overwhelmed with all of the options, we recommend reading our blog post on small business finances. In order to build a good credit score, you must make payments on time. Paying on time will show that you are reliable and can effectively manage your finances.

It is recommended, at a minimum, to check your credit score on an annual basis. Doing so allows you to check for errors. In fact, a study by the FTC, or federal trade commission, says, “26% of individuals noticed at least one error on their report.” Should you notice an error in your credit score, you’ll need to notify the commercial credit bureau that is reporting the incorrect data.

How To Access Your Credit Score

The three major business credit bureaus are Dun & Bradstreet, Equifax, and Experian. Each of these bureaus has its own method of determining your companies creditworthiness. Typically the report will include your: credit summary, public records, business credit score, and payment trends. While the price to check your credit score varies by the bureau, Nav offers free credit score reports by signing up for an account.

 

FINSYNC’s intuitive online tools can help you easily visualize, manage and project your company’s cash flow so you can gain insights that will optimize your chances of getting the best financing to grow your business.