Bad credit can have adverse effects on a firm. It can make it difficult to obtain financing, block the leasing of premises and equipment, and be a long-lasting black mark on your record that prevents you from striking future deals.
It, therefore, pays to know the essentials of your business’ credit report and related score, and the behaviors that can make the score rise or plummet.
Credit score and credit report
A business credit score is similar to a personal score, or FICO score but, rather than measuring an individual’s credit history, it shows a business’ creditworthiness. The score, which ranges from 0 to 100, is calculated by credit bureaus, each having their own method of collecting and verifying information to determine an enterprise’s creditworthiness. The three major bureaus are Experian, Equifax, and Dun & Bradstreet.
A credit report, on the other hand, is a summary of how much your business has borrowed and repaid in the past, new and closed accounts, pending and late bills, and other financial records. While personal credit reports are issued for free from consumer credit bureaus, you’ll have to pay for your company’s credit report and score. Regardless, it’s essential to check these reports regularly, and more so when you’re planning to apply for a small business loan.
Only an individual and select parties can view a personal credit report. However, a business report is public information, which means anyone, including lending institutions, debtors and suppliers can see your score, as long as they pay for it.
Protecting your score
The best way to maintain a healthy business score is to make timely payments. These include loans and credit card debt, bills, supplier receivables and any other form of credit your business may have.
Also, keep track of your report and stay on top of changes as they occur. The three reporting bureaus advice that a business checks its credit report at least quarterly. A damaging report from a supplier, for instance, can affect credit score significantly in just a few months.
Because there’s no standard algorithm to determine business credit scores, errors do occur. It’s your responsibility to ensure the data presented in your report is accurate. Report inaccuracies to the relevant bureau promptly, provide any supporting documentation and follow through to make sure the records are corrected.
A poor credit score will hinder you from acquiring funds from lending institutions, which means it’s likely that your score will stay low for a long time. Fortunately, third party lenders like First American Merchant exist and can give you a merchant loan even with a low credit score. And, when you pay the loan on time, you’ll be on your way to building a higher score.
Good business credit pays off in several ways. In good times, you can get more capital and grow your business, and in bad times, you can easily borrow money and keep your enterprise afloat. It’s therefore essential that you aspire to keep your score healthy, at all times.