Having an excellent business credit score demonstrates a company’s credibility and financial reliability. Business credit scores are part of a business’s credit profile and can vary based on which business credit report is ordered.
Business owners who understand the significance of maintaining a healthy business credit profile with excellent scores are the ones who remain relevant in their respective competitive landscapes.
Which business credit scores are most common?
The most common business credit scores relied on by decision-makers are generated from the top three business credit reporting bureaus – Dun & Bradstreet, Experian, and Equifax. The business credit scores and indexes generated in each of these reports save time and money when approving potential business partners or loan applicants.
However, it is important to learn about your own industry and the lenders and firms that you want to work with to know which business credit scores will be most relevant for your company. While a business credit score is relatively standard, the credit indexes reported by each business credit bureau are much more complex. Many of these indexes use statistics and probability to rank and compare your business amongst the rest of the industry.
How are business credit scores used?
Business credit scores are used to determine whether a company is a low or high risk as a potential partner, borrower, or approval on a bid.
With just one glance at a company’s business credit score, investors, partners, or lenders can determine which applicants reflect the least amount of risk and highest likelihood to deliver as promised.
What is the significance of maintaining a good business credit score?
Business credit scores are a key factor when decision-makers are determining interest rates, loan terms, or whether or not a company will be a good partner. However, most business owners don’t even realize that anyone can access their business credit profile at any time without their permission.
Because the business credit industry is highly unregulated, no authorization is required prior to reviewing a company’s credit score. This means that lenders, potential partners and even competitors may be viewing your business credit profiles at any time, making decisions about your company based on the information they find – whether it is accurate or not.
What happens if a business does not maintain a good business credit score?
A business that does not maintain a good credit score may still get approved for funding on loans, lines, and equipment leases; however, the business owner will be paying much higher direct costs or interest rates if their business credit scores and indexes are below a certain margin. A marginal credit score may also leave a business vulnerable to risk; in some cases, necessary credit lines may be pulled or cut when they are needed most.
Additionally, many large firms monitor the business credit profiles and industry indexes of their partners, requiring them to maintain their credit scores and indexes within a certain threshold or they will be dropped indefinitely. Some examples include: 20-year partners that were terminated because they failed to meet the credit threshold requirements of their partner-store; or businesses that were stripped of their partnership after signing with a major retailer, but before officially launching their product or service. All planning, costs for potential orders, and time invested in attaining the accounts were lost.
What could cause a bad business credit score to be generated?
There are many reasons a business credit profile would reflect poor or marginal credit scores. Below are some of the most common reasons a business credit report generates a bad score:
- There is no existing business credit profile, therefore there is no business credit score to generate. Whether you are incorporated and in business for a week or for 20 years, it does not mean you will automatically have a business credit profile.
- Lack of accurate business information due to limited vendors, creditors, and lenders, including misinformation about the size, financials, and location of the company.
- Poor payment history on existing tradelines. There may be liens, judgments, late payments or collections reported. Some may even be complete errors or totally unknown to the business owner.
- A company normally having great business credit but had one delinquency occur without their knowledge could dramatically drop their business credit score.
- Mixed file issues or errors reported to the business credit bureaus. The company’s credit profile is being mixed with a different firm that reflects poor credit or there are just errors reported by the bureau to credit.
- Business identity theft or internal fraud.
Getting educated is the key to understanding the significance of having good business credit scores
As the world evolves and more data becomes available surrounding the habits and traits of successful and not-so-successful businesses, more information will be made available to decision-makers of every industry that are linked to business credit scores.
It is so important to monitor your business’s credit profiles to make sure they are at their best at all times. If you don’t, and an error requiring you to fix your business credit score occurs, you could be subject to denied funding or partnerships at just one glance and no one is required to tell you why you were not considered.