Credit Repair

What You Need to Know About Credit Before Starting a Business

If you’re planning on starting a business, you need to know what stands between you and profitability. There’s customer acquisition, pricing and overhead, of course. But there’s also your business credit score. While it is similar in concept to a personal credit score, there are important differences to grasp.

A business score can provide a much-needed line in the sand between your personal and professional finances. It can also help you do things like score lower rates on commercial business loans and insurance. And a high business credit score could help you do things like extend your line of credit with a supplier, or qualify for a business line of credit or credit card. In short, a better business credit score will help your business thrive — and a lower one could put profits out of reach.

Here’s what you need to know about these scores before you set up shop:

What is a business credit score?

A business credit score is an approximation of the creditworthiness of your business. And, much like a personal score, it’s also associated with a business credit report.

Here are other key elements business owners should know:

  • Range: These generally run from 0 to 100 (unlike the personal model which usually uses a 300 to 850 range). The higher your score, the better it is for your business.
  • Model: Unlike a personal credit score, there isn’t a widely used scoring model for businesses. That means your score will likely vary across credit bureaus.
  • Data: Information about your business is generally pulled from sources like public records, as well as banks and vendors with which you do business. But, for a more fair and accurate assessment, you may also wish to report information directly to the credit bureaus.

How do I get a business credit score?

You can find out your business credit score by checking with the following bureaus:

  • Experian: It costs $39.95 for a copy of your business credit report, which includes your business credit score as well as a general report with information like bankruptcies, payment summaries and other key facts about your business.
  • Equifax: These cost $99.99 per report and include information like risk scores, payment trends and a predictive business failure score, which estimates the likelihood that your company will survive the next 12 months.
  • Dun and Bradstreet: It will likely cost you at least $149 per month to find out this score, though there is a free credit monitoring option that only notifies you of changes in your score, rather than providing a full report. The paid versions also give business owners access to alerts when others request their business credit report as well as comparisons with companies in their industry.

You can also get a business credit score from FICO®, the same company that provides the most popular personal credit scores.

To access your score, you first need to separate your personal and professional finances. That way, credit bureaus will have data to pull that’s specific to your business. This means incorporating or creating an LLC, getting an employer identification number and opening business bank accounts. You may also wish to set up a dedicated phone line for your business.

Next, you’ll need to figure out which score, bureau or model to use and either get your one-time report or sign up for a monthly or annual subscription. There is, however, an alternative if you’re looking to save money: You can access your Experian business credit score for free through a company called Nav. That would also give you access to free credit monitoring and alerts, as well as letter grades and reports from both Experian and Dun and Bradstreet.

How do I start building business credit?

While there isn’t a single uniform system for determining business credit, there are certain guidelines that will serve you well in raising your business credit score. For example, as your company’s net worth increases and your track record grows, so too will your business credit score. However, those elements are difficult to control, so it’s best to keep your focus on the things you can actively influence. These include:

  • Maintaining an on-time payment history for all of your business dealings
  • Asking lenders to report payments to the credit bureau of your choice (if they aren’t already doing so)
  • Regularly checking public records and your business credit report for inaccurate information

Conclusion

A business credit score is an important aspect of your business’ financial health, so it’s important to make it a priority and focus on raising your score. That can help you do things like save money on interest payments or insurance over time, or maybe even allow you to get approved for a loan that’s the missing piece to bringing your business to the next level.

Building up to and maintaining good business credit is a goal that requires patience and dedication, but through good financial hygiene and solid tracking, it will pay off for your business in the long term. And that’s something that should make every business owner take note.

 

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