Your business credit score is much like your personal credit score, in that it is a numeric representation of your creditworthiness, and lenders and potential investors look at this score to determine if you qualify for financing.
How is it Structured?
Unlike personal credit scores that follow a standardized algorithm to calculate creditworthiness (FICO), business credit scores are put together based on separate and varying variables between each business credit bureau. Scores range from 0-100 and are primarily rated based on on-time payments. Another key difference between personal and business scores is that business credit reports are public, listing the name, address, and other notable information of the company.
How is it Calculated?
Each business credit reporting agency verifies information differently. The main three reporting agencies (Dan & Bradstreet, Equifax, and Experian) collect payment information from lending and service companies (e.g., banks, vendors, business credit cards, etc) and use this information to generate a score.
It’s important to note that vendors and lending agencies are not required to report anything to the agencies and have a bad reputation for only reporting negative items. When building your business’ credit, it’s important to inquire whether or not your vendors report to the reporting agencies and if they do, what information they report.
Why Build Business Credit?
Business credit is important for getting financing, of course, but it is also a factor in determining insurance rates. Building business credit allows you to keep your business’s financial needs separate from your personal credit and needs. The more business credit you build, the less likely lenders will ask for personal financial statements when applying for financing. Having good business credit also increases your overall buying power.
How to Access Your Report?
All three major business credit bureaus offer credit report options for purchase. These services can range from $40-$100 and can include other services in addition to the actual report. There are also a few companies that offer all three reports lumped into one service.
For more information about establishing or improving your business’ credit, contact Capital Funding Source today.