Why Your Business Credit Score Matters

A good business credit score is essential to fulfilling your everyday transactions and meeting your short- and long-term goals. Without it, you won't be able to move forward as quickly or achieve the critical milestones you need for your business to succeed.

Why your business credit score matters

Your business credit score matters for a number of reasons. According to debt attorney and author of Life & Debt: A Fresh Approach to Achieving Financial Wellness, Leslie H. Tayne of Tayne Law Group, P.C., having a good business credit score can help you get financing for your business for mortgages, loans on properties, and more.

"It's a snapshot to creditors and lenders of your business's financial situation—and whether your business is likely to fail—allowing them to assess the risk of lending to your business," Tayne says.

In addition to securing loans and money from lenders, you also can demonstrate your worthiness to businesses that are considering working with you. "You might need to buy materials from other businesses in order to conduct your own business," says Logan Allec, a CPA and owner of the personal finance site Money Done Right.

"For example, a florist cannot make deliveries to customers without first buying or leasing a cooled van. A new florist with a high business credit score seems [like a] more legitimate business to vendors who sell cooled vans than a florist without a high business credit score."

What is a good business credit score?

While personal credit scores can range from 300 to 850, business credit scores generally range from zero to 100. Each business credit scoring system uses its own guidelines for scoring.

One of these systems, the Dun & Bradstreet PAYDEX, says that a business credit score of 80 to 100 is good and signals that you pay on time or early, 50 to 79 is fair and indicates you are 15 to 30 days late on a payment, and zero to 49 is bad and signals that your payments are being made 60 days or more past their due date.

Tayne says, "It's important to know what's going to impact each score in order to have a better handle on your business's financial situation and position your business for success."

How to find your business credit score

When building new business credit, it's important to keep an eye on your business credit score. You can use Dun & Bradstreet, Equifax, and Experian to go about this, according to Tayne:

• For Dun & Bradstreet, you'll get free access to your business credit score, but you'll also have to create a business profile. If you want to see your entire credit report, you will need to pay a fee.
• Equifax charges a one-time fee to see your score and report, or you can buy a bundle.
• Experian charges for a one-time report, or you can pay a monthly fee for ongoing access to your information.

How to improve your business credit score

When you have a good business credit score, you'll receive a number of benefits when seeking a loan. "The higher your score, the lower the interest rate and the longer term you will get, i.e., lower monthly payments," says Brian Cairns, CEO of ProStrategix Consulting. "You will likely be able to qualify for a larger loan and have to carry less insurance. The opposite is true for a low score."

If your business credit score is not as high as you'd like, there are a few steps you can take to improve it, according to Allec:

• Make sure you pay all your bills on time; you can do this by setting up automatic payments or calendar reminders.
• Improve your credit utilization—that is, the amount of credit you use, compared to the amount available to you (the less you use, the better). Allec recommends ensuring that your balances stay below the 15% threshold of your credit limit.
• Make sure you address any credit reporting errors immediately. Once you've run your business credit report, you should be able to view your entire history. "By doing so, you'll be able to fix any errors that can be negatively impacting your credit score," says Allec.

Considering your business credit score is just one of a number of required tasks when you're starting a business. By working to build and maintain a good business credit score, you are helping to put your business on solid footing for the future.