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Guide to Business Credit Score

Posted on 09 September 2020 by admin (0)

As a small business owner, you are more likely aware of the importance of financial management. When it comes to financing a business, it’s very important to understand what we mean by business credit score. Businesses such as Panama tow truck came about as a result of prudent financial management. A business credit score is a measure of how creditworthy business is. Creditors and lenders make use of credit score to evaluate the eligibility of financing a business. The score will vary based on different evaluation methods.

Understanding business credit score

It is important to understand what a good credit score means for businesses. Your score is key to the kind of finances your business can get. It plays a crucial role in the growth and success of your operations. It is different from personal credit score which is tied to your social security number.
A business credit score is calculated in a number of ways. After you start running a business, you will develop business credit based on the financial activities such as how you consistently pay the invoice on time, how you manage your cash flows, and how you manage your business bank accounts. In essence, all your business financial activities will have a history. There are three common methods of calculating a business credit score, which include; Dun & Bradstreet, Experian, and Equifax.

There are a number of factors that impact your business credit score.

The first is time in business. When your business is brand new, your business credit score will be the lowest because you lack credit. However, this will matter less after your business reaches two years of operation. This is the period banks become more willing to fund you with business loans.

Another factor affecting the credit score is your payment history. Your consistency in paying bills on time and every time is the single most important factor that will impact your business credit score. A single late payment can weigh heavily on your future access to capital. You need to ensure you set up a system that maintains consistent payments from the beginning of your business.
Another important factor is the credit mix. As we have initially said, you can build credit in a number of ways such as using business credit cards, taking out loans, and establishing your trustable trade lines. However, future lenders want to know that you can appropriately manage your finances in a good way given a borrowing situation. This is where credit mix comes in, and will influence your business credit score. If you can take out multiple forms of credit and manage them appropriately, you get a higher credit score.

Additionally, you should ensure there are no mistakes on your credit report. Business credit reporting is not perfect and errors in reporting happen more often than you think. You should ensure there are no errors in your credit reports. Ensure you always have a positive credit report. Manage all finances you get in a good way and pay all your dues on time.