Small Business Credit Scores and Why They're Important

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Published: Feb 24 2022

Last updated: Feb 24 2022

Read time: minutes

Written by: Capital on Tap USA

As the owner of a small business, you may have wondered how easy it is to obtain business funding. Maybe you started your business with personal savings, but a time could come when you need additional funds for growth or any other purpose.

It's important to understand how your business credit score factors into your ability to obtain funding. It’s also important to learn how the process works, how your personal credit score and that of your business are different, and how these scores are calculated. Arming yourself with this knowledge will help you learn how to establish good business credit and successfully expand your business when you're ready.

Your business can be assigned a credit score just like your personal credit score. This number helps lenders determine your business's creditworthiness, or whether your business has the ability to pay back a loan. Having a good business credit score helps your business qualify for helpful business tools as business loans and credit cards. There are four major business credit reporting agencies:

  • Dun & Bradstreet
  • Experian
  • Equifax
  • FICO

Below, you'll learn which factors drive your business credit score and why it's important.


What is a Business Credit Score?

Your business credit score is the number that represents how lending institutions view your creditworthiness and illustrates the likelihood of obtaining funding for your business.

Your business credit score is similar to your personal credit or FICO score with a few key differences. For instance:

  • Personal credit scores range from a low of 300 to a high of 850. Most lenders require a score at or above 600 to qualify for a personal loan.
  • A business credit score ranges from 0 to 100. Most business lenders require a score at or above 75.


Why Is a Business Credit Score Important?

Each business credit report agency has a different way of calculating its scores. One thing that each agency has in common, however, is that they rely on a business's payment history with its suppliers and creditors, as well as other lenders. Records showing you've made timely payments helps establish a good business credit score.

The importance of your business credit score is that it measures your business's stability. This is why organized, regular, and correct balance statements typically equate to higher scores. Other key items reporting agencies and lenders look at include:

  • How many employees you have.
  • How many years you've been in business.
  • How well you've met previous business obligations.

If you want to increase your business credit score, it's important that you have a handle on these fundamentals.

Good credit scores help your business:

  • Negotiate favorable terms with suppliers.
  • Establish a line of credit with a bank.

If you have yet to establish a business credit score, your personal credit score will be considered – but you will need an extremely strong personal history when attempting business funding in this manner.

Business credit scores present a challenge because:

  • It can take a year or longer to establish or boost your business credit.
  • You can't directly change your score, you can only influence scores with good payment history.
  • It's time-consuming to keep detailed records and monitor your business credit.


Check Your Business Credit Score – It Matters

Maybe you qualify for a loan and you don't even know it, because you've never looked at your business credit history.

Maybe you're ready to apply for a business loan but you've never checked your business’s credit history – and you don't qualify.

There are several reasons why checking your business credit score is a must, especially if you have hopes of expansion and scaling.

But one of the most important reasons you should check your business credit score regularly?

Because reporting agencies aren't infallible. Mistakes can and do happen.

Just like personal credit reporting agencies, sometimes information gets added to a business’s report for an account that isn't theirs. Clerical errors can happen. You know your transactions best – you're the one who is most likely to catch a mistake and be able to report it.


Errors on Your Credit Score can be Costly

There could be a mistake on your business credit report, and if that mistake isn't corrected, lending institutions and other creditors could deny you access to funding because of it. Fortunately, errors can be corrected, and the credit reporting agency will investigate errors you report to them. If the agency finds there is indeed a discrepancy, other agencies with your information must also rectify their reports.

Once you know your business credit score, you can create a detailed roadmap to improve it. A good business credit score can unlock many doors of opportunity for your small business.

Ready to build your business credit score? Get started with a Capital on Tap business credit card, issued by WebBank.

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