What exactly is business credit? If you’re trying to start up your own business, you need to be familiar with this all-important term, and what it means for you.
In many ways, credit is similar to an individual’s personal credit. It’s a measure of how trustworthy you are when it comes to borrowing money or making payments over time. Just like a person with bad credit will have a hard time getting a loan or credit card, so a business with poor credit will have difficulties getting loans or setting up payment plans. Lenders look at your history and see if you’ve been faithful to previous commitments, and if you’ve had trouble before (in their minds), you’ll probably have trouble this time.
Business is measured on a scale from 0 to 100, with a higher score being better. 75 or above is usually considered to be an outstanding rating. Personal credit is measured from 300 to 850, with 680 or above being an excellent score.
Who reports on your business credit? As is the case with personal credit, there are 3 major bureaus that keep information about businesses: Experian, Equifax, and Dun & Bradstreet (which is not a personal credit bureau). When you apply for any kind of credit — loan, credit cards, etc. — the lender orders a report from one or more of these bureaus to see how you’ve been doing. Even small things like utility payments are reported, and even if you have just one late payment, you’d better believe it’s going to be on your file. Fortunately, one late payment isn’t a huge deal, as long as it doesn’t happen again.
Why is credit business so important? As mentioned before, your credit is basically a summary of how trustworthy you are. You can give the most convincing speech to a lender, but if your credit is bad, it tells them that you can’t be trusted when you borrow money. Almost any company that you try to set up a payment plan with is going to take a look at your business credit history and make a decision from it.
Business is taken into consideration in other situations as well, and not just in lending of money. If you try to establish a partnership with another company, you can be sure they’ll look at your credit history to see whether it would be a wise decision or not. Also, if you need to lease any equipment to expand your business, your credit will again be a factor.
You can see how your credit appears to lenders in the same way that an individual would. You can order your business credit report from any of the major bureaus, and see if the information in them is accurate and favorable. If there is a blot in your history that would make a negative impression on a lender or potential partner, you should take steps right away to improve your business credit so they can see that you’re proactive and are taking charge of your credit.