5 Factors That Impact Business Credit Scores
There are a few main factors than can impact business credit scores.
- Payment history: Late payments, tax liens, judgments, and collections have great impact on credit scores. The commercial credit reporting bureaus want to see a history of on-time payments, ideally with no slip-ups. If you do miss payments, have debt that goes into collections or on court records, it could drop your business credit scores to the highest risk level and take many years to recover from. Payment history is a major factor for both business and consumer credit, one late payment or collection for $100 can cause denial on a business loan or line of credit.
- Credit usage: Your credit utilization rate is the ratio between the total amount you owe and your total credit limits on accounts. Some business credit scores are impacted substantially by balance to limit ratios while others are not impacted at all.
- Age of credit: For some of the business credit bureaus, scores will not be generated if the average age of credit or number of accounts is too low. Having relatively new credit and only a few accounts reflects an inactive business entity, in turn putting the business in a higher risk category.
- Credit mix: Show-off credit management experience by having a healthy mix of accounts. Equipment leases, vendor credit, credit cards, lines/loans, are some of the types of credit reflected on business credit reports. Not all business credit bureaus use credit card accounts on credit profiles. Knowing which types of credit will reflect on what bureau can impact the health of a business credit profile. A nice variety of business credit for companies should be well-established before applying for many types of business lines/loans.
- Business Info: When a third party pulls your business credit report for the purpose of a potential partnership or bid approval, they are looking to see if you fit into the right category of services to fulfill their need. If your business has the wrong SIC and NAICS code that company may be discarded before any other information is reviewed or assessed. These codes reflect the industry or sector that you work in. Using the codes to discard incorrect firms is an easy way for the potential partner to weed out non-qualified partners. The number of employees, length of time in business, and correct ownership information can also hurt or help a firm trying to gain approvals. Having the correct reflection of company information is just as important as having positive payment history.
Lucky for you all 5 of these factors are within your control, once you understand what can impact business credit scores, you’ll have a better handle on managing them.