A business credit score also referred to as commercial or trade credit score is a numerical representation of the creditworthiness of your company. This information is generally used by lenders to determine your eligibility to receive funds from them in the form of loans. It gives a prediction of your likeliness to reimburse the loan based on your previous lending history. A high trade credit score is an indication that your business has a history of repaying its debts on time.
Why Is a Business Credit Score Necessary?
There are a few start-ups and established businesses that have not prioritized in the building of their credit scores. It is probably because they already have a lot on their plate or fail to see its importance. A good business credit score gives you access to a variety of additional sources of financing and may enable you to be eligible for lower insurance premiums. It may also allow you to acquire loans without having to give personal guarantees that would have made you liable in case any of your business loans end up unpaid. Potential investors sometimes take a look into the credit scores of businesses they would like to invest in before deciding on loaning you the money. It makes it a crucial factor that you should give more consideration.
How Do You Build Your Business Credit Score?
Here are a few essential steps you can follow to build an excellent commercial credit score.
Ensure Your Business Is Legally Registered
By registering your enterprise as a limited liability company, you receive a federal employer identification number. Agencies that are tasked with assessing and reporting business credit are able to keep track of your business credit transactions using this number.
Obtain a Business Bank Account and Credit Card
Ensure that you have separate credit cards for your business and personal credit. If you find this too daunting, try following good credit habits to build your credit rating regardless of it being personal or business.
Operate Through Vendors That Avail Payment Reports to Business Credit Bureaus
Working with vendors ensure that your credit score is consistently being updated.
Make Payments on Time
Late payments considerably damage your credit rating and should be avoided at all costs. You may even consider making early payments, which often significantly improve your credit score.
By knowing what a business credit score is, its importance and how to build it, you may be able to take the necessary steps towards establishing a good business credit rating.