By Dipali Nishad for SKB Accounting

 

What is a Business Credit Score? 

 A business credit score shows creditworthiness of a company. It is calculated after analysing multiple factors to comprehend the financial position and risk of a business. It widely ranges from 0 to 2000, constituting majorly three business credit ranges i.e. 

  1. D&B Credit Score (1-100) 
  2. Experian Credit Score (0-100) 
  3. Equifax Credit Score-
    a) Payment Index (0-100)
    b)
    Tradition Score Risk (100-992)
    c) Business Failure Score (1000-1880) 

 

What is the importance of a sound business credit score? 

Your small business may require additional funds for working capital requirements, equipment purchase or expansion. The foremost option you look for is taking a loan, that’s where Business Credit Score comes to play. The institution or individual lending you money, first studies your business credit score to measure the financial risk involved. With a sound business credit score, you can get a good amount of money at a more favorable interest rate. Therefore, maintaining a good business credit score is necessary for your company.  

An ideal business credit score is 750 or more. Incase your business credit score isn’t matching the bar, here are some tips that will help :- 

  1. Do not cancel old business credit cards 
    Credit history is an important aspect while analyzing credit score. A positive credit history portrays your stability and the trust that suppliers & vendors have in your business. 

    An older credit account has a longer credit history. So don’t scrap off your old credit cards. If you have many credit cards, cancel out the latest ones. It will reduce the impact on your credit score. On the other hand, cancelling an old credit card also erases the credit history which could be included while calculating the final business credit score. 

  2. Stick to the Payment Deadlines 
    This might sound like a no-brainer but business owners often forget the payment deadlines in the middle of other important operations and management of the company. If you have to pay suppliers on regular intervals, try to pay at least once in a month or more frequently.  It will boost your credit score with brownie points. It portrays you as a creditworthy business. 
  3.  Decrease your credit utilization ratio
    A credit utilization ratio shows the percentage of a borrower’s total available credit that is currently being utilized. The Credit Reporting Agencies uses this ratio to calculate your business credit score. A low credit utilization ratio will improve your credit score. The ideal ratio is up to 30%, notes Forbes. In order keep this ratio low following things can be done:- 
    • Pay off your balances or at least reduce them as soon as possible. 
    • Increase the limit of your credit card. 
    • Reduce your credit card expenditure.
    • Take a new line of credit. 

      4. Take a short term loan & repay EMIs on time
If you have repaid your older loans, take a short-term business loan and repay it on time. This makes the credit reporting agency see you as capable of handling credit. The business credit score will improve by implementing this tip.

 

-by Dipali Nishad