How does a business credit score work?
A business credit score is a crucial insight into a company’s financial health and reliability. Lenders will use a credit score to assess how much of a financial risk a business is, based on a summary of the information in their business credit reports, whenever it submits any kind of credit application.
A high business credit score is a good indication that a company will reliably make repayments on time. This will make it more likely that the company’s credit application will be accepted, and they’ll be offered more competitive rates. This score is also accessible by everyone from vendors and suppliers to landlords and business partners.
It’s important that companies don’t neglect their credit score and take the necessary steps to keep it as healthy as possible.
What affects your business credit score?
Just like personal credit scores, there are various factors which determine a business credit score. This score is generated by credit reporting agencies and is calculated using a number of parameters like the company’s payment history.
These details typically consist of public financial data and information supplied by the company, its lenders, and other vendors. Some example variables considered in a business credit score include the company size, its level of credit utilization, any current outstanding debts, and the length of the company’s credit history. (And this still isn’t even the full list of factors.)
You can help improve your business credit score by providing accurate and up-to-date financial information. It’s a good idea to routinely check your business credit report in order to identify any errors or inaccuracies. You should notify the relevant credit bureau if you spot anything that needs correcting.
There are four main business credit scores and reporting agencies. Dun & Bradstreet Credit Score for Businesses is most commonly employed in a credit check. There are also the Experian Business Payment and the Equifax Business Credit Scores. These are typically used by banks and lenders when assessing credit applications.
Finally, there is the FICO LiquidCredit Small Business Scoring Service. Unlike the above examples, FICO is not a credit bureau. It instead uses information from Dun & Bradstreet, Equifax, and Experian to generate a credit score. That score is then commonly used when making approval decisions on Small Business Administration loans.
These four credit reporting agencies can all hold different information on the same company and, as a result, there can be variation in these business credit scores. They also use different credit ranking scales, meaning what is considered a good score by one reporting agency may not be by another.
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