3 Tips to Evaluate Your Business Credit Score

Just as individuals need credit in order to buy homes or cars or to make repairs to their homes, businesses may need credit to progress their business plans and operations. However, banks and other financial institutions cannot simply give money to businesses. That is why businesses have credit scores just as individuals do. Knowing what your business’s credit score is and why it is important can help you achieve your business goals.

Business Credit Scores

Like a personal credit score, a business credit score is used to determine creditworthiness. However, the business credit focuses on the creditworthiness of a business organization rather than an individual. This score, which takes a number of factors into consideration, is a numerical representation of a business’s likelihood of repaying a loan or other line of credit. Businesses use this number when they are seeking funding for the business, such as a loan to open a new location or to make repairs to a building. This credit score is also useful in keeping business and personal finances separate. Therefore, if there is a problem with business finances, it is less likely to affect owners’ personal credit scores.

Calculating a Business Credit Score

While credit scores for businesses are typically calculated between zero and 100, there is no industry standardization for the algorithms used to determine the number assigned to a business. Instead, the calculation varies from bureau to bureau based on the weight of criteria used in the calculations. Bureaus collect financial information on the business from banks, vendors, and other creditors to determine credit utilization and repayment history.

Monitoring a Business Credit Score

It is valuable for businesses to monitor their credit scores in order to protect their financial stability and keep problems or mistakes from damaging credit. Scores can be obtained from the reporting bureaus as well as from independent agencies. Requesting reports periodically can be used to monitor a business’s credit score.

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