A high score wins you favorable loan terms, opens other doors
Focusing on credit scores and what consumers can do to improve them
Running your own company is filled with important
obligations, and among them is maintaining strong business credit.
Much like an excellent FICO score, a high business credit score
can help you get favorable terms on loans and other types of credit. Your
business credit score looms especially large when you apply for business loans
of $25,000-$250,000, according to Jay DesMarteau, head of commercial specialty
segments at TD Bank.
“On a smaller ticket loan request … it’s probably going to
be the primary determinant they’re going to use to get that loan approved,”
DesMarteau said. “Once you go above that amount, you start getting
A high credit score can also help you establish supplier
relationships, buy insurance and even rent office space.
To keep personal and business scores high, you must pay your
bills on time and avoid taking on more debt than you can repay. And if you
declare bankruptcy as a business owner or as an individual, that’s usually a
credit score killer and a major red flag to potential lenders.
But there are some key differences in how business credit
scores are calculated. For instance, some business credit scoring models take
into account how early (or late) you pay back suppliers and lenders.
Here are the key steps in building business credit and
maintaining a high score, keeping in mind the factors of the most commonly used
business credit scoring models.
1. Always pay your
bills on time – or ahead of time, if possible.
Making all of your credit card and loan payments on time is
the most important factor in maintaining a good consumer credit score. The same
is true in business credit.
“Late payments negatively impact your credit, which could be
detrimental when it comes time to get a business credit card or line of
credit,” said Julie Pukas, head of U.S. Bankcard and Merchant Solutions at TD
But unlike your FICO consumer score, you can be rewarded for
being an early payer in some business scoring formulas. Under its Paydex scoring
model, Dun & Bradstreet assigns you a score of 80 if you pay your bills on
time. But if you consistently pay suppliers 30 days in advance, you can achieve
the maximum Paydex score of 100.
2. Work with lenders
and suppliers who report to credit bureaus.
If you re-pay your lenders and suppliers early every time,
that’s great for your business’s reputation. However, it won’t help your
business credit score if those firms don’t report your good payment habits to
the credit bureaus.
Before you enter a relationship with a lender or a supplier,
confirm with them that they will in fact report your payment history to the
bureaus. Additionally, some business credit bureaus offer tools (such as Dun
& Bradstreet’s CreditBuilder
Plus) that enable owners to have their account information reported.
“Businesses can ask their partners or clients to submit
trade references to Dun & Bradstreet, or they can use a business
credit-building solution to submit trade references themselves,” said Amber
Colley, business credit expert at Dun & Bradstreet.
3. Don’t use too much
Some business credit score models take into account how much
of your business’s available credit you’re using. A low credit score dragged
down by overutilization can give lenders the impression your business is
overextended or is having trouble making ends meet.
4. Get a business
credit card for everyday expenses.
Taking out loans for big purchases is a common practice for
businesses of all sizes. Many also use
business credit cards for everyday purchases,
such as supplies, utility bills and travel. A card can boost your credit score
as long as you make at least the minimum payment on time each month and keep
balances low relative to your credit limit. Experts advise picking a card that
caters to your business’s individual needs.
“A credit card is a great option for recurring or small
expenses that can be paid off quickly,” Pukas said. “For business owners who
are frequent travelers, a card that rewards on gas could be a smart option, or
for those who regularly entertain clients, a card that offer cash back on
dining may be a better fit.”
5. Keep your personal
Some business credit scoring models, including those offered
by Equifax, Experian and FICO, can incorporate personal as well as commercial
credit data. Experts strongly recommend keeping your business and personal
credit separate, but it’s critical not to ignore one to the detriment of the
other. And letting both scores slip could prevent you from getting any credit
at all, even if your business is profitable.
“If we see someone who has a really bad business credit
score and a really bad personal credit score, a lot of times we won’t do the
deal – even if they have the cash flow,” TD Bank’s DesMarteau said. “Their
character is in question, but it can also be an early warning indicator. If
they can’t make their bill payments, the cash flow’s not going to look good
beyond the date it’s calculated.”
As you work to maintain your business’s credit score and its
overall health, keep in mind the five
factors of FICO’s traditional credit scoring model when managing your
personal credit. After all, if your business is new and has little or no credit
history, your own personal credit will likely determine how much you’ll be able
to borrow or which business credit cards you can qualify for to fund your operations.
6. Stay on top of
your business credit score.
It’s important to always know where your credit stands, but
opinions are mixed as to whether you should pay for a business credit
“As you pay bills, experience cash flow issues and take on
debt, your own scores and ratings can be impacted,” Colley of Dun &
Bradstreet said. “You’ll want to know what your scores are at all times if
you’re bidding on contracts – some scores could help make or break your bid.”
Evan Roberts, founder of Maryland-based real estate
investment firm Dependable Homebuyers, said his company does not subscribe to a
credit monitoring service because it gets credit updates from its lenders.
“We’re lucky enough to be in a position where our credit
score was good off the bat, so it wasn’t like we needed to continuously monitor
it and change our behavior to improve it,” Roberts said. “Every time we go to
get a loan, we receive a new report and that gives us an update. Our credit
scores stay pretty consistent.”
used business credit scoring models
Dun & Bradstreet
Paydex Score: This score measures a business’s payment history and assigns
a risk score on a scale of 0 to 100, with the latter representing the lowest
risk. The Paydex score takes into account how far in advance or how long
overdue you make payments to suppliers and vendors.
Plus: Experian’s primary business credit score uses a 1-to-100 risk score
(with 76-100 representing the lowest risk and 1-10 the highest), but it
evaluates more than just your payment history. It also incorporates factors
such as credit utilization, number of trade lines and business size.
Credit Risk Score: Equifax’s credit risk score uses a range of 101-660, and
a higher score indicates lower risk. The bureau includes a variety of
information in its business credit reports, including a summary of credit
accounts with banks, suppliers and service providers and public records such as
bankruptcies, liens and Secretary of State business registration.
FICO Small Business
Scoring Service score: FICO’s scoring system uses a score ranging from
0-300, with 300 representing the lowest risk. The FICO model uses four data
inputs – consumer bureau reports for a company’s principals and guarantors,
business bureau reports, application data and business financial data.
Credit scores are
complex, but achieving good credit is not
Even though credit scoring formulas can be difficult to
understand, achieving a high personal credit score is not
complicated. Neither is maintaining a good business credit score. If your
business is in good financial health, chances are your credit score will remain
With a strong credit profile, you’re poised to build
relationships with banks, suppliers and, most importantly, customers. That’s a
recipe for success for any company.
See related: How to check a small business’s credit report, Which business credit card is best?, Capital One plans free business credit reports
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