What is a business credit score and how you can improve yours even during a pandemic.

What is a business credit score and how you can improve yours even during a pandemic.

Achieving a high business credit score is more than a status symbol. It is a tangible sign to lenders and vendors that you are an excellent risk when the time comes to request a loan or choose an insurance plan. During this era of pandemic when stability and credibility are key, invest in your company by learning how to establish and boost that all-important credit score.

What is a business credit score?

There are three major credit bureaus, each of whom comes up with their own credit score for your business. These include the following:

  • Dun & Bradstreet. Dun & Bradstreet joined forces with Transunion to better evaluate the risk assessment of small businesses. Your company will be given a PAYDEX score ranging between 1 and 100. This number represents how often you make on-time payments to your creditors. To receive a score from this bureau, you need a credit line with at least three vendors and a D-U-N-S Number.
  • Equifax. This bureau scores companies on their rate of delinquency in making payments (the higher the score, the lower the risk you represent). There is another score predicting the likelihood that the business will fail in the next 12 months. To get an Equifax score, you must incorporate an LLC, establish business accounts, obtain a federal employment identification number and get a business phone.
  • Experian. This bureau gives you a score ranging from 1 to 100 known as an Intelliscore Plus. The figure represents the risk your business poses to potential vendors and lenders. The higher the score, the better. To get an Experian report, you must present information such as years in operation or business size or show a trade line.

It is important to keep in mind that your business credit score is completely independent from any personal scores you already have. Whether you have no relationship with the three bureaus or already have a score that needs enhancement, there are concrete steps that you can take.

Open a business account.

Establishing a record that you are doing business in your state and city is one of the best ways to get the word out to the bureaus. If you have not already done so, consider opening the following in your business’s legal name:

  • Business bank account;
  • Merchant account (separate from your business account);
  • Listed business phone number.

As you establish your identity and begin to build the foundations of your reputation, the importance of keeping detailed documentation of financial and other business records cannot be overstated.

Apply for a business credit card.

As a consumer, there was probably a time in your life when you had no personal credit and needed to gradually establish it over time. Many people do so by applying for a credit card, perhaps one that is prepaid or has a very high interest rate, and demonstrating that they pay their bills in a timely manner. The business credit card can perform the same service for your company. Keep in mind, however, that this card is an audition during which you show your stability and reliability. To that end, pay your bill on time and keep your debt-credit ratio as low as possible.

Take out a business loan.

Requesting and being accepted for a small business loan can be a terrific way to enhance a mediocre or average credit score – as long as you are vigilant about making all of your payments on time. For companies that are doing relatively well credit-wise but just need a little boost, taking this step can do wonders for your relationships with Dun & Bradstreet, Equifax and Experian.

However, this option is not for everyone. If you are just starting out or if your score has sustained some serious hits in the past, you may not be a viable candidate for a traditional small business loan from a conventional bank. That does not, however, mean that you are out of luck. Alternative solutions include taking out a loan in your personal name or applying for one through a non-traditional lender.

As the name implies, non-traditional lenders operate outside the box. That means that they are not federally regulated. On the upside, this allows lenders to be more flexible when it comes to the amount you can borrow and the repayment terms they impose. You might even be able to arrange interest-only payments for the next year or two, presumably until the effects of the pandemic ease. Of course, there are disadvantages that come with this form of borrowing. Since your business represents a higher risk, rates will be higher. In addition, the very lack of regulation that provides for easy, speedy and lower-interest borrowing also means that no one is overseeing lenders or protecting the companies that borrow from them. For that reason, diligent research and constant vigilance are a must when procuring this type of loan.

Carefully review credit reports.

Use the same fine-toothed comb that you employ with lenders to read your own company’s existing credit reports. If you come across any incorrect information such as allegations that you did not pay a debt that you actually resolved, contact the credit bureau. Removing incorrect data can go a long way toward raising your score.

Ask vendors to report your payments.

As we have stated, credit bureaus give you scores based on your payment history, positive or negative. Review your reports to see if any of the vendors or lenders to whom you make regular payments are missing. Since they are not required to report credit histories, your long-standing record of on-time remittances may be going unnoticed by Dun & Bradstreet and the rest. To rectify the situation, ask them to submit positive payment reports on your behalf. If they are unwilling to do so, consider opening an account with someone else who will.

Balance your credit utilization ratio.

This term refers to the amount of credit you are using as compared to the amount available. Maintaining a level under 30 percent is considered to be best practice for small businesses. Ways to maintain this level include paying down existing balances, requesting that your credit limit be increased and opening additional accounts.

Your credit score is the public barometer that displays to lenders and insurers the risk that your company represents. Even during these uncertain times, there are concrete actions that you can take to establish or raise a score of which you can be proud. Considering all of the blood, sweat and tears that you consistently pour into your business, there is no time like the present to let the world see the depth of your accomplishments.