Business Credit Scores: What They Are and How to Improve Yours

You’re likely familiar with personal credit scores, which are based on criteria like the percentage of your available credit that you use, whether you make timely payments and the types of credit lines that you carry. But did you know there are also business credit scores?

What is a business credit score?

Much like personal credit scores, business credit scores measure the creditworthiness of your business and are sometimes used to predict the likelihood that your business will default on loans and other types of credit. While personal credit scores are tied to an individual’s Social Security Number (SSN), a business credit score is connected to the business’s Employer Identification Number (EIN). Business credit scores range from 0 (the lowest) to 100 (the highest), with a range of 65-100 considered good or better.

Who issues business credit scores?

The three leading credit-rating agencies for businesses (and the minimum points required for a score that’s considered good or better) are:

Why business credit scores are important

There are several reasons why it’s important to maintain a good (or great!) business credit score:

  • Vendors and other suppliers often use them when determining payment and discount terms
  • For existing businesses seeking funding, lenders could use business credit scores to evaluate loan eligibility along with personal credit scores
  • Strong business credit scores may help improve the odds of credit approval when personal credit scores aren’t as strong

How to build or improve business credit

Establishing a business credit score is a great step for a new business; improving your business credit is essential for established companies. Here are six ways to build your business credit:

1. Establish a business bank account

Commingling personal and business funds makes business deductions and taxes more complicated, and you don’t want negative events in your personal finances to potentially impact your business. Opening a separate bank account for your business will help you establish your business’s credit history properly right from the start.

2. Get a business credit card or bank line of credit

To build an excellent business credit history, use a business credit card for some of your expenses—but be sure to pay off the balance every month. Similarly, build a relationship with your local banker and negotiate a small line of credit if you are eligible.

3. Manage your use of credit cards and lines of credit

Know what your credit limit is on each credit card or line of credit and keep usage under 35% of your maximum limit.

4. Pay your bills on time or early

Vendors will often offer trade discounts to accounts that pay on time (or early). Stay current on sales, payroll and income tax bills, too, because government agencies will report liens to the credit bureaus.

5. Choose suppliers and lenders who submit your payment activity to the credit agencies

Many national and regional suppliers will report payment histories as a standard procedure, and others will do it if requested. As long as you stay on top of your payments, this will benefit your business by helping to establish a solid payment history. Note, though, that some lenders—typically those who require a guarantee from business owners—will report payment history on personal credit reports, not business credit reports.

6. Regularly check your report and correct any errors

Even minor mistakes can have a big impact. Make sure the correct legal name is used by the agencies, especially if you have a common name. Also, check to make sure that loans are paid off and creditor notices are terminated. If you find errors, promptly contact agencies to get the correction process underway, as it can take some time.

Check your business credit score for free, and then keep improving it

It’s always a good idea to stay on top of your business credit score, just as you should for your personal score. Nav allows you to check your business credit score and summary for free, without any negative impact on your score, and also offers monitoring and fraud protection for a monthly fee. If you need assistance improving your business or personal credit score, get in touch with Pursuit today.

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