4 benefits of having a good business credit score
Loan application form fair credit score with pen
Your credit score is a reflection of your financial viability and reputation as a whole. Since it’s a critical component of your financial identity, it’s important to establish strong credit early in life.
As a company owner, you will benefit greatly from gaining a broader perspective about a business credit score. There are many advantages to having a great business credit score, so keep reading to learn the importance of a business credit score and how to build credit starting from nothing.
What is a business credit score
Before learning the benefits of a strong business credit score, it’s important to know what a good credit score is. A business credit score is a numerical indicator of how likely your firm will be accepted for financing.
The personal credit score is a term that most individuals are aware of. However, there are some significant distinctions between it and business credit scores. Personal credit scores may vary from 300 to 850. The majority of lenders need at least a score of 600 for a personal loan. But some lenders don’t require any credit check, like Self’s credit builder loan and others.
On the other hand, business credit scores range from zero to 100. However, every business credit agency has its unique scoring mechanism.
How to improve your business credit score
As you’ve learned the value of a solid company credit score, it’s best to develop good financial practices. Here are a few tips you can apply to improve your business credit score.
- Pay bills diligently: Make it a point to pay your obligations on time and in full. By doing so, credit agencies will conclude that you’re handling your funds appropriately. Consequently, this will reflect well on your business’s credit score.
- Reduce your liabilities: Even though it’s difficult, keeping up with your financial commitments is essential if you want to raise your credit score. It’s important to pay off your liabilities, as well as any other unpaid debts owed to vendors and suppliers.
- Monitor your credit score: Monitoring your credit should be a habit. By checking your credit report regularly, you can see whether there are any errors or problems.
Why having a good credit score is important
When you’re first starting, it’s convenient to pay for necessary items using your personal bank account or credit cards. However, as your company expands, you’ll discover that having a business credit has a lot of advantages. Read on to know more about it.
- Qualify for a loan facility
Among the benefits of good business credit is the convenience of applying for a business loan. When companies with poor credit histories apply for loans, lending institutions are concerned that they won’t be able to pay them back on schedule. Hence, it’s important to maintain a good credit rating to score that loan easily.
Additionally, businesses that have established a good business credit score and track record of repaying their debts are more certain to get favorable loan conditions from lenders. Also, credit scores may be used to get reduced interest rates and higher credit limits. Improved terms may be quite beneficial to your company since you may save more money from it.
- Suppliers may offer you better deals
Not only can having excellent business credit benefit you when applying for business loans, but it also speaks well for the deals offered by suppliers. If your suppliers have confidence in your financial stability, they will be more likely to waive advance payments and let you order on credit.
- Obtain capital for growth and expansion
The businessman trying to improve credit score
Let’s say your company is capable of meeting its existing financial obligations without recourse to loans. You must then think of what might happen when you seek to expand. Obtaining financial aid for a company project enables you to grow your organization beyond your original expectations.
Whether the expansion entails the addition of new buildings, machinery, or merchandise, a loan may assist you in getting started.
- Safeguard your finances
You may use business credit to keep your personal and corporate financial responsibilities separate. This implies that your company’s liabilities will be reflected in your business credit reports. Therefore, having a separate business credit protects your personal credit rating from any financial difficulties your company may have and vice versa.
However, reviewing your personal credit score is still a must. If you seek a loan, lending institutions may check both your personal credit score and the credit score of your company.
Conclusion
Ultimately, it’s clear that having a good business credit score has several advantages. Taking into account your company’s credit score is simply one of the duties that must be completed when establishing a business. By building and maintaining a positive business credit score, you are putting your firm on a stable financial foundation for the future.
