Your Business Has a Credit Score - And It Isn't Yours
Most small businesses, whether they realize it or not, have a business credit score and it’s as important to monitor, protect and manage as your personal credit. Though unfortunately, most small business owners don’t know their score, or worse – they don’t know they have one in the first place.
As soon as you open a business credit account, take out a loan or open any sort of account with your business, you start to compile a business credit score.
It’s calculated much in the same way that your personal credit score is. You’re graded on your credit worthiness and risk to lenders: on-time payments, amount of credit, credit utilization - all the terms you’re used to dealing with when managing your personal credit all count and are part of your business credit.
Having a good business credit score, just like having a good personal credit score, will open doors for you to get more loans, of greater amounts, with more favorable terms and rates.
Your business credit score is compiled and graded primarily by three major credit bureaus. You’re familiar with Equifax and Experian; both of those bureaus also compile personal credit scores. For your business credit score, the other major bureau is Dun & Bradstreet.
While your personal credit scores are easy and often free to obtain, for your business credit score, you’ll need to fork over as much as $60 to see what’s in it. Business credit scores are graded from 0-100, unlike personal credit scores that range from 300-850.
We’ll say this again because it bears repeating: as soon as you open a business credit account, credit line or take out a loan under your business you begin to compile a business credit score. Many sole proprietors tend to do day-to-day business using personal credit. This is fine for certain tasks, but you need to be careful.
If your business ever ends up in trouble, you’re putting your personal credit and your personal financial health at great risk.
You don’t want to handle a business failure period, but if you do and your business was run primarily on personal credit, a business failing can throw your personal financial health into turmoil. Your safest move is to do your best to separate personal finances with business finances when it comes to credit and to establish and manage your business credit.
A good business credit score can do much heavier lifting for you and your small business than your personal credit score can in the same arenas.
This is not to suggest that your personal credit and business credit aren’t often intermingled and can’t impact each other. But, you’re best served by doing what you can to separate them.
You don’t want being a few days late with your cellphone bill to impact what kind of rate your business gets when dealing with a new vendor.
Managing and maintaining good business credit will help you get more favorable rates and terms when doing business, open up doors for bigger loans and more favorable rates and terms with lenders, and can even cut back on how often you need to prepay for the things you need to run your business.