What are business credit scores?
Cash flow and accounting

What are business credit scores?

A business credit score is a way for businesses to access finance or funding. A good business credit score can help you to access the right finance for your needs and benefit your brand. On the other hand, a bad business credit score could mean that you're denied loans or other forms of funding because lenders are wary of lending money to businesses with poor financial histories.

What is a business credit score?

A business credit score is a number that represents your business's creditworthiness. It's calculated based on your business credit report information, which contains information about how you manage loans and other debts.

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Business credit scores are not the same as personal or consumer scores. Businesses use these scores to help decide whether or not to lend money to you and at what interest rate.

The higher your business credit score, the more likely lenders will want to do business with you because they'll see that you're a reasonable risk and have strong financial management skills.

How does a business credit score work?

A business credit score is a rating given to a business on its ability to repay debt. It's based on the same criteria as personal credit scores, but a business credit bureau calculates it.

Businesses use their credit scores for more than just borrowing money—they also use them to determine whether someone is approved for a job, insurance coverage or even an apartment lease. The higher your business' score, the better your chances of getting approved for these things.

How is a business credit score calculated?

Your business credit score is based on your past debt, current debt and payment history.

Business credit scores versus personal credit scores

For your business, lenders use a different scoring system than personal credit. Business credit scores are calculated differently than personal ones, and they take into account factors that don't have anything to do with your personal finances—like whether or not you have a long track record of managing money successfully.

Businesses have different needs when it comes to taking out loans and other lines of credit than individuals do. For example, if you own a retail store and need cash to restock inventory after the holiday season is over—a time when sales typically drop off—you might be able to get a loan from your bank or another financial institution to keep things going smoothly until spring arrives. Customers start buying again (and so on).

But lenders want more than just proof that their money will be safe: They also want evidence that their loan will be repaid on time with interest.

That's why many banks look at "business credit scores" before deciding whether or not they'll approve an application for financing; these scorecards consider factors like payment history as well as any bankruptcies or judgments against them.

What affects your business credit score?

  • Your credit history: The longer you've been in business and the better your payment history, the better your business credit score will be.
  • Debt management: The lower your debt-to-equity ratio, the better it is for your overall score.
  • Payment history: If you have a few late payments on record, even if they were only 30 to 60 days overdue, that can hurt your score.
  • Length of credit history: Having been in business for a long time helps with this scoring category because it shows that you've had plenty of time to prove yourself as a responsible borrower.
  • Credit mix (the different types of debt used): If all of what you owe consists solely or primarily of one type of debt—such as lines of credit—you may not get as high a rating as someone who has diverse sources of borrowing.

A good business credit score can help you to access the right finance for your needs and benefit your brand

One of the best ways to build your business credit score is by using a business credit card. Business credit cards allow you to use the same consumer-friendly features as personal credit cards, but they can also help your business' finances in other ways.

For example, if you have a good payment history, it makes sense for potential lenders to trust that you'll pay back any money they give you—which means easier access to finance.

Disclaimer: always refer to professional advice. The information presented here is purely indicative and not intended as advice. Always consult a legal or finance professional.

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