Getting a Grasp on Business Credit Ratings

Credit can be confusing, especially when there are multiple agencies reporting different numbers from different calculations. Here is a breakdown of what your business credit ratings mean and how they affect you as a business owner.

Credit Ratings Defined

Your credit rating is a numerical value calculated by a credit reporting agency that represents your creditworthiness. Creditworthiness is a measure of how responsible you are with making payments, paying bills on time, abiding by the terms of your loan or credit agreements and paying off your debt. Each credit reporting agency has a different rating scale, but they all serve the same fundamental purpose.

Business credit ratings usually do not consider your personal credit as part of your score. However, if you own a sole proprietorship or partnership and only use personal credit to support your business, your personal credit score is used instead of a separate business credit rating. In some cases, personal credit is taken into account for small businesses depending on the size and nature of the company.

Another key factor that determines your creditworthiness is your business’ public records. Bankruptcies, tax liens and other legal judgments against your business are presented on your credit report and factored into your score.

How Credit Ratings Affect Your Business

Your business credit ratings do not necessary reflect the greatness of your ideas or efficiency of your internal processes, but they do affect how lenders perceive you. For example, if you apply for a loan to purchase new equipment or expand your business and you have poor credit, banks and investors may view you as a risk and deny your application.

How to Improve Your Credit Rating

The best way to improve your business credit is to pay your bills on time. Having debt does reflect poorly on you, but having too much debt could signal a red flag that you should not take out any more loans or lines of credit. Monitor your debt to credit ratio and make sure you are not maxing out your available credit.

Sometimes credit reporting agencies acquire and publish the wrong information. Review your credit report on a monthly basis and check for errors. Dispute any and all discrepancies immediately upon detection.

Everyone is entitled to one free credit report per calendar year, but it is worth the cost to pay for a monthly subscription. Make sure you stay on top of your business credit ratings so that you can access funding whenever you need it.


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