Sep 17, 2021
Maintaining a good business credit score plays a key part in various aspects of any small, mid-size, or large business, especially if there are plans to expand and grow. If you are thinking of applying for a commercial mortgage, business term loan, short term loan, or even something like Covid-19 relief funding or SBA options for Covid-19 relief, you have to make sure that your business credit score passes the requirements of lenders. Below is some more crucial information that you should know about your business credit score:
Definition of a business credit score
A business credit score is used by lenders to determine the level of financial risk of a particular business. It is similar to a personal credit score in that it provides important insight into the financial status, reliability, and health of an entity through information presented in their credit report. So, for example, if your company has a good business credit score, the chances of getting approved for a commercial mortgage, business term loan, short term loan, or even something like Covid-19 relief funding or SBA options for Covid-19 reliefis higher than if your score is below average.
Differences between a business credit score and personal credit score
While a business credit score and a personal credit score share some similarities, they differ in many ways, too. Below are examples of the differences between the two:
· Credit score range – Business credit scores are rated from 0 to 100 while personal credit scores can be anything between 300 and 850.
· Rating agencies and formula used – Business credit scores and personal credit scores use different rating agencies and formulas for determining a number.
· Accessibility – Personal credit scores can easily be accessed using free resources. However, business credit scores have fewer options and usually require you to pay a fee.
Business credit score rating system
Different credit reporting companies may use different business credit score scales. Below are the credit scoring systems for two credit scoring companies:
Company A’s business credit scoring system:
· From 80 to 100 – Good
· From 50 to 79 – Fair
· From 0 to 49 – Bad
Company B’s business credit scoring system:
· From 76 to 100 – Low risk
· From 51 to 75 – Low to medium risk
· From 26 to 50 – Medium risk
· From 11 to 25 – High to medium risk
· From 1 to 10 – High risk
Even though Company A and Company B use different scoring ranges and labels, both credit scoring systems are about the timeliness of payments or the level of risk of delinquent, late, or defaulted payments.
Factors that can impact your business credit score
There are several factors that can influence how high or low your business credit score is. Below are examples:
What your payment history looks like – Things like missed payments can negatively impact your business credit score rating, so make sure to always settle your payments on time.How long your credit history goes back – Your score is calculated by factoring in the length of your credit history, including the ages of your oldest and newest credit accounts and the average age of your credit accounts. In general, having a longer credit history generates a higher credit score.