For businesses, their credit score is a big part of what determines their ability to get funding that’s often vital to running the company. It’s important that entrepreneurs are aware of what determines the credit score of their businesses. We’ve recently addressed how a business can improve its credit score, but it’s also important to understand what factors go into that number, though many of these factors are similar. Business credit and personal credit are very separate for business owners, but a lot of what determines each score is similar. In order to truly improve a business credit score, business owners need to be as knowledgeable about their finances as possible.
Paying bills on time
One of the biggest factors that goes into your business credit score is whether or not your company has a history of paying its bills on time. Various credit reporting bureaus look into this score in slightly different ways, but most use something called “a delinquency predictor.” This algorithm determines, according to your business’s credit history, how likely the business is to fail to pay back a loan. Making sure the business is making payments on time is the best way to keep this score high.
Using business credit cards
As soon as possible, apply for a business credit card. You’re going to have to put some of your own capital into starting a business, especially at the very beginning, but it’s important to clearly separate business and personal finances. Once business credit cards and accounts have been established, it’s easier to use these accounts to determine business credit. A business owner’s credit score can be incredible, but if the business doesn’t have good credit, the personal score won’t matter.
How much credit you use
Like an individual’s credit score, a business credit score is in part determined by how much of their available credit is being utilized. It’s important to use a fair amount of credit that’s available, but it’s also vital that a business is careful to not get too close to maxing out their allotted credit. Finding that sweet spot in the middle can be tricky, but it really helps a business’s credit score. Knowing your credit limits and working with them is important for this factor of a business credit score.
Age of business accounts
Finally, business credit scores are also influenced by how old the business accounts are. If you just launched your business a month ago and have only opened accounts a short time before that, you probably won’t have a high credit score. Give accounts time to build up credit history and track reliable payments. In order to build credit based off of how long accounts have been open, it’s also important to keep accounts open, even if there isn’t a balance with them. Keep accounts active on a smaller level in order to build up longevity.