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why should you check your business credit score?

why should you check your business credit score?

December 1, 2021
5 min read
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the credit reports and credit scores of both businesses and individual consumers are similar when it comes to evaluating their creditworthiness and how well they have managed their credit in the past. financial institutions use the 3-digit credit scores and credit reports to determine the creditworthiness of an individual or a business to make decisions based on what they see. the information and credit scoring system used to build the business credit scores are very different from individual credit scores. read below to know all about business credit score, how it's calculated, how you can get it. 

how do business credit scores work?

business credit bureaus such as - TransUnion CIBIL, Equifax, Experian, and CRIF Highmark - collect information from a wide range of sources to compile business credit reports and business credit scores. data collected for business credit reports may come from the business’s creditors; vendors and suppliers; public records and court filings; and collection agencies. it also takes into consideration how you handle your commercial credit payments on loans, credit cards, and bank or trade lines of credit.

business credit score range

CRIF High Mark's credit score for businesses ranges from 300 to 900, where a 700+ score indicates a good repayment track on the credit availed by your business. whereas, CIBIL Rank, the credit scoring system for businesses by TransUnion CIBIL, ranges from 1 to 10. a CIBIL Rank closer to 10 has a higher chance of credit approvals. Experian business credit scores range from 1 to 100, where the higher scores signify better credit. Equifax business credit scores range from 101 to 992, with a higher score reflecting lower credit risk.

each of these credit bureaus use their own unique method to weigh the information to prepare your business credit report and credit score. some of the common factors considered to calculate your business credit score include:

  • credit information such as the number of trade accounts, outstanding balances, payment history, credit utilization ratio, etc. 
  • public information records such as how recent and how frequent any liens, judgments, or bankruptcies are and what was the amount involved. 
  • demographic details such as the number of years in business and the size of the business.

why should you check your business credit score?

you should check your business credit report regularly to protect both you and your business in several ways, check some of them below:

to prevent fraud

by regularly checking your business credit report, you can identify potential fraud or identity theft. when you get the latest copy of your business credit report, check for any new account you don’t recognize, or credit application that you didn’t make, or inaccurate information in your report that could be a sign of fraudulent activity. if you find any of these in your business credit report, you should contact the credit bureau immediately and raise the dispute. 

to monitor the health of your business

your business credit score shows the financial condition of your business. a good business credit score can help you get access to new credits at lower interest rates and better loan terms and conditions. most financial institutions evaluate your business credit score to decide whether to approve your loan credit request or not. regularly checking your business credit score can help to evaluate where your business stands and what are your chances of getting credit approval if you apply for a new loan.

safeguards your personal assets

if you don't have a good business credit score, financial institutions may ask you to give a personal guarantee or use your personal credit score to apply for business credit. in case your business hits a loss or you can not pay back the debts, then your personal assets and your personal credit score will be at high risk. hence, having a good business credit score is important to not only keep your business safe but also to protect your personal assets.

how to build your business credit history?

you can start establishing your business credit history by registering your business and opening business bank accounts, leases, utility services, and other accounts. to build your business credit history, get a business credit card and request trade credit from suppliers. while you get the credits, make sure you pay back all of them on time and in full. just like individual credit scores, paying back your creditors on time is an important factor in improving your business credit score. 

how keep your business credit score healthy?

you can keep your business credit score healthy by regularly monitoring your business credit report to clear off any potential fraud and inaccurate information on your credit report.