What is a Business Credit Score?

What is a Business Credit Score?

by | Apr 26, 2021

Individual consumers aren’t the only parties who get assigned a credit score. Businesses also have credit scores, and they are used by creditors and other third parties to evaluate the financial health of a company.

When businesses wish to take out a loan, the lender can pull their business credit score to decide whether to extend them credit and determine the terms of that credit. A company may even pull another company’s business credit score before they decide to do business with them as a client or vendor.

A strong business score can help companies qualify for credit.

How Business Credit Scores Work

Business credit scores are usually ranked from 0 to 100, while the FICO® Small Business Scoring Service ranges from 0 to 300. These scores are determined using information from the business credit report, which contains information including the business size, historical data, payment history, account information, current debts and more.

Business credit score algorithms vary between scoring model and credit bureaus. Unlike personal credit reports, business credit reports are publicly available to any party who is willing to pay for them.

Why Business Credit Is Important

Business credit is important for several reasons:

  • Separation of business and personal finances. If you own a small business, you might have used your personal funds and credit cards to get started and fund everyday expenses. But keeping your personal finances separate from your business simplifies things for accounting, borrowing and tax purposes.
  • Getting approved for financing. If you need a business credit card or business loan, having an established business credit score can help you access credit with better terms. And the better your business credit score, the more borrowing power you will have.
  • Lower insurance rates. Insuring your business can be expensive. In some cases, higher business credit scores can help you keep rates low.

How to Establish Strong Business Credit

If your business has never borrowed money or established a company credit card, there may not be much of a credit history. Establishing a strong business credit score involves many of the same steps you might take to positively impact your personal credit:

  • Pay your bills on time. Just like with personal credit scores, payment history is the most important factor that goes into your business credit score. Pay all your bills on time.
  • Establish business credit. Not all creditors and service providers report activity to the credit bureaus. A business credit card is a good place to start building business credit, even if you only need it sporadically.
  • Pay attention to your credit utilization. Don’t max out your business’s revolving credit, such as company credit cards. Keep your utilization on the lower side.

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*Source: Fair Isaac Corporation.

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