March 2021

Credit score basics for small businesses

This article has been abbreviated. Access the entire article at our Small Business Resources site.

At some point, most businesses need to borrow money or ask suppliers for credit. When securing credit at the most attractive rates, it helps to have a strong business credit score, which is a measure of the financial health of your company. This rating will help potential lenders, suppliers and financial institutions assess your business’s creditworthiness — how likely the business is to pay its bills on time — which affects how much credit they’re willing to offer. Several credit reporting agencies — including Dun & Bradstreet, Equifax and Experian — track business credit scores, each with its own scoring methodologies.

Factors that determine your business credit score

Credit bureaus typically collect a business’s payment history from sources such as vendors, banks and business credit card issuers. They use this information to gather insight into your company’s annual revenue, expenses and number of employees, whether the bills are paid on time, and how much credit is available to the business on lines of credit and credit cards. Credit bureaus also search public records, taking into account bankruptcies, tax liens and other information that may offer insight into your business’s ability to pay bills on time.

Read more: “Why and how to keep your personal and business finances separate”

How to raise your business’s credit score

  • Establish trade credit accounts — meaning those where a vendor is willing to give you “terms,” such as paying in 30 days.
  • Encourage your vendors and suppliers to report your positive payment history to the credit bureaus.
  • Pay bills on time or early. This can also help improve your credit profile, but be sure to keep in mind your ongoing cash flow needs.
  • Make sure you don’t max out your business credit. Many experts recommend keeping credit utilization — the percentage of your available credit you use — to 30% or less.

What if you spot an error?

Keeping an eye on your business’s credit score regularly and reviewing credit reports for accuracy and discrepancies will help you track your progress. All major credit bureaus offer programs that enable you to check your scores. Some are free, and some are available for a fee. If you spot an error, contact the credit bureau that reported it to file a dispute.

There are opportunities to build your credit score every day. Building a positive credit history can help position your business for whatever the future has in store.

To discuss your business goals, set aside some time for a telephone call with a Small Business Specialist.

MAP3458563 | 02/2021