Business Credit Card Scores: 5 Things You Need To Know
As a business owner you should understand a few things about business credit scores because it differs a lot from consumer credit scoring. This article covers the basics of business credit scores that you should know in order to qualify for business credit cards, vendor credit lines, loans and other lines of credit that you would need to run a profitable business.
Your business credit score indicates your likelihood to make your payments late. Just like consumer scores your business will be assigned a score based on credit history that indicates the risks of doing business with you. To put it another way your business credit score shows whether you are likely to make your payments late. The score is used on much the same way as consumer credit scores when you apply for any sort of credit for your business.
A potential business partner or lender will consider your business credit score in order to decide if it makes sense to do business with you. You credit score is usually considered mainly by financial institutions but any other institution or entity that has to extend credit or deal with risk will also consider your score. This means that vendors, credit card providers, leasing companies, utility companies, insurance agencies, business supply companies, wholesalers and others will also need to consider your credit score before doing business with you.
Since business credit scores predict delinquencies firms that issue scores need to consider several factors in order to do so as accurately as possible. With consumer scoring the FICO is dominant but in the business world there is no dominant score. Rather there are three firms that issue scores based on slightly different criteria. The three firms are Dun & Bradstreet, Equifax and Experian. Some of the data that the firms might take into consideration include the current payment status, credit utilization, derogatory items such as any accounts that might be late or in collections, past payment trends and demographic details of the business.
The number used to indicate the business credit score varies from one firm to another. For instance Experian's score uses a number between 1 and 100 where the higher score indicates better risk. Equifax uses a number between 101 and 992 where the higher score indicates less risk and the score itself predicts whether a small business will become delinquent on credit accounts within 12 months. They also have a Small Business Credit Risk Score for Suppliers that ranges from 101 to 816 and predicts severe delinquency or change-offs on supplier accounts or bankruptcy within 12 months. The score from D&B uses a dollar-weighted numerical indicator which shows how a business paid its bills over the past year and ranges from 1 to 100 where the higher number shows better performance.
Making payments on time is the biggest factor that should be considered if you want to improve your scores. Other habits that will help improve scores all round include forging more trade relationships where credit is extended and keeping credit utilization to a reasonable level. Making all effort to avoid collections, legal trouble and bankruptcy, keepings errors off the reports and paying down debt will prevent your score from taking a huge dip. Business owners should consider it an important task to monitor the report regularly to see what is going on. Reports can be ordered but understandably there will be a cost attached to doing so.
There are cases where the personal credit score of the business owner will be used on the calculation of the score for the business. The firm will pull the personal information of the business owner and factor it in with business data such as payment history, banking details and other factors to arrive at a score. Quite the opposite is true though since the business credit score will not hurt or help the personal credit score. This is why business owners need to be mindful of their personal credit since it might impede their ability to qualify for business credit.
Your business credit score indicates your likelihood to make your payments late. Just like consumer scores your business will be assigned a score based on credit history that indicates the risks of doing business with you. To put it another way your business credit score shows whether you are likely to make your payments late. The score is used on much the same way as consumer credit scores when you apply for any sort of credit for your business.
Business Credit Scores Facilitate Business Relationships
A potential business partner or lender will consider your business credit score in order to decide if it makes sense to do business with you. You credit score is usually considered mainly by financial institutions but any other institution or entity that has to extend credit or deal with risk will also consider your score. This means that vendors, credit card providers, leasing companies, utility companies, insurance agencies, business supply companies, wholesalers and others will also need to consider your credit score before doing business with you.
Business Credit Score Calculations Vary From One Company To the Next
Since business credit scores predict delinquencies firms that issue scores need to consider several factors in order to do so as accurately as possible. With consumer scoring the FICO is dominant but in the business world there is no dominant score. Rather there are three firms that issue scores based on slightly different criteria. The three firms are Dun & Bradstreet, Equifax and Experian. Some of the data that the firms might take into consideration include the current payment status, credit utilization, derogatory items such as any accounts that might be late or in collections, past payment trends and demographic details of the business.
Scoring Algorithms Vary From One Company To Another
The number used to indicate the business credit score varies from one firm to another. For instance Experian's score uses a number between 1 and 100 where the higher score indicates better risk. Equifax uses a number between 101 and 992 where the higher score indicates less risk and the score itself predicts whether a small business will become delinquent on credit accounts within 12 months. They also have a Small Business Credit Risk Score for Suppliers that ranges from 101 to 816 and predicts severe delinquency or change-offs on supplier accounts or bankruptcy within 12 months. The score from D&B uses a dollar-weighted numerical indicator which shows how a business paid its bills over the past year and ranges from 1 to 100 where the higher number shows better performance.
Score Can Improve With Good Payment Habits
Making payments on time is the biggest factor that should be considered if you want to improve your scores. Other habits that will help improve scores all round include forging more trade relationships where credit is extended and keeping credit utilization to a reasonable level. Making all effort to avoid collections, legal trouble and bankruptcy, keepings errors off the reports and paying down debt will prevent your score from taking a huge dip. Business owners should consider it an important task to monitor the report regularly to see what is going on. Reports can be ordered but understandably there will be a cost attached to doing so.
Personal Credit Scores Might Impact Business Scores
There are cases where the personal credit score of the business owner will be used on the calculation of the score for the business. The firm will pull the personal information of the business owner and factor it in with business data such as payment history, banking details and other factors to arrive at a score. Quite the opposite is true though since the business credit score will not hurt or help the personal credit score. This is why business owners need to be mindful of their personal credit since it might impede their ability to qualify for business credit.
Compare Business Credit Cards Online
