Business credit scores and reports are two of the most important tools you can use to manage your business finances. They can help you make informed decisions about how to grow and improve your business, and can also be used by lenders to determine your creditworthiness. In this guide, we’ll take a closer look at what business credit scores and reports are, how they’re used, and what you can do to improve your scores.
What are business credit scores?
Business credit scores are numeric ratings that indicate the riskiness of lending to a particular business. They are based on information in your business’s credit reports, which detail your history of borrowing and repayment. The scores are used by lenders to help them decide whether or not to extend credit to your business, and if so, at what terms.
There are a few different types of business credit scores, but the most commonly used is the FICO SBSS score. This score ranges from 300 to 850, with higher scores indicating lower risk. Scores below 650 are generally considered to be subprime, and may make it more difficult to get approved for loans or lines of credit.
What are business credit reports?
Business credit reports are similar to personal credit reports in that they provide detailed information about your borrowing history. However, there are some key differences between the two. Business credit reports include information about your business, such as its legal structure and contact information. They also include information about your business’s credit accounts, including loans, lines of credit, and credit cards.
In addition to account information, business credit reports also contain public records, such as bankruptcies and tax liens. This information can be helpful for lenders in assessing the risk of lending to your business.
How are business credit scores used?
Lenders use business credit scores to help them determine the risk of lending to your business. They may also use other factors, such as your personal credit history and the financial health of your business, in making their decision. However, the score is an important part of the lending process and can be a major factor in whether or not you’re approved for a loan.
What factors impact business credit scores?
The biggest factor impacting your business credit score is your payment history. This includes information about whether you’ve made on-time payments, late payments, or missed payments on your loans and lines of credit. Other factors that can impact your score include the amount of debt you’re carrying, the length of your credit history, and the types of credit accounts you have.
How can I improve my business credit score?
There are a few things you can do to improve your business credit score. One is to make sure you have a good mix of different types of credit accounts. This includes both revolving accounts, such as credit cards, and installment loans, such as lines of credit or term loans.
Another thing you can do is to make sure you keep your balances low. This means using less than 30% of the available credit on your revolving accounts and making payments on time. Finally, you can try to get a business credit card from a lender that reports to business credit agencies. This can help build up your history of borrowing and repayment, which will in turn help improve your credit score.
Business credit scores and reports are important tools for managing your finances and growing your business. They can help you make informed decisions about borrowing and help you get the best terms possible on loans. By understanding how they work and taking steps to improve your score, you can make sure your business is in good financial health.