• Susan Craig, at Content Creator


• 05.12.2023 03:15 pm
undisclosed

A business credit score is a vital indicator of a company’s overall financial health. For startups, having excellent creditworthiness opens up different opportunities to boost their growth, including access to better financing and favorable terms from suppliers and vendors.

Maintaining a healthy credit rating is challenging, especially for startups whose owners are likely still learning the ropes of managing their venture's finances. To help you, we’re providing a thorough guide about business credit scores and the benefits of using financial management tools to improve them. 

Why Business Credit Score Matters

Poor business credit ratings lead to various issues that could affect your venture’s financial capabilities. For instance, lenders use credit scores to assess a company's borrowing risks. The lower your venture's creditworthiness, the more likely lending entities will deny your applications. 

Meanwhile, if you acquire a loan with a poor credit rating, you will likely pay higher interest rates and other fees. Lending companies might do this to compensate for the increased risk of loaning money to businesses with poor creditworthiness. Unfortunately, facing such costs can also harm your venture’s financial capabilities.

In addition to that, some suppliers and vendors check a client’s credit rating before extending their partnership terms. A significant decline in your credit score will negatively impact your relationships with them, making it more taxing to negotiate favorable conditions. When that happens, you'll have difficulty acquiring the right resources for your business.  

Lastly, a poor credit rating will make it challenging for your business to invest in new equipment, hire additional staff, or jump into expansion opportunities. Because of that, your venture will have difficulty growing in its industry. 

What Impacts Your Business Credit Score

Your payment history and other public records significantly affect your business creditworthiness. One of the first things credit bureaus will check is how responsible businesses pay their bills, loans, and other financial obligations. Missing or making late payments regularly will lower your credit score. It also increases your risk from a lender's perspective.

Information like bankruptcies, liens, and judgments can also hurt your company's credit score. Unfortunately, these details stay on a credit report for years. That means they will have a long-term impact on your creditworthiness. 

Additionally, a high credit utilization rate damages your company’s credit score. A high credit utilization occurs when you use a large portion of your available credit. Credit bureaus and lending entities often see this as an indication that you rely too much on loans for your debts and bills, showcasing your company's poor financial management and placing you as a high-risk borrower. 

Image by Mikhail Nilov from Pexels

The Ideal Credit Score for Businesses

Today, various credit bureaus exist to tabulate and publish a company’s creditworthiness. Registering your business is not required, but it's highly recommended to determine your credit score. 

It's vital to know that these entities have different scoring systems, meaning their ideal credit scores for businesses vary. However, they all consider the same factors when determining a company's rating. 

The following are some of the most reliable credit reporting companies. You can register your business among the options below or use them all to strengthen your data. 

Dun & Bradstreet

Dun & Bradstreet is one of the best business credit bureaus today, with information on over 300 million businesses worldwide. It features a credit scoring system called PAYDEX, with a rating of one to 100. The higher the score is, the more favourable it is for companies.

According to Dun & Bradstreet, the ideal score businesses must get from the PAYDEX is above 80. 

Experian Business

Experian Business is a separate division of Experian that collects and maintains credit information on companies of different sizes. Like Dun and Bradstreet, its credit scoring system is called the Experian Intelliscore, featuring a score of one to 100, with high numbers more favourable.

Typically, a score of 76 and above is considered good, but Experian still finds 50 to 75 a fair number.

FICO Small Business Scoring Service (SBSS)

FICO is one of the best options for small business lenders. It's preferred by many because its scoring system doesn't consider an owner's personal score, meaning it only takes into account a company's financial capabilities. 

The FICO SBSS has a score ranging from zero to 300. Businesses receiving 160 or 180 is already considered a good score.

Equifax Business

Equifax Business is a different division of Equifax that focuses on corporate clients. Today, it’s one of the most significant credit bureaus, with reports on nearly 90 million businesses globally.

Its credit risk scores range from 101 to 992. No specific number constitutes fair, but, like with other credit bureaus, the higher, the better. 

Using Financial Management Tools To Improve Your Credit Score

While learning how to improve your credit score fast, many experts will advise using a financial management tool to support you. This step is more crucial when you’re improving your business credit score. 

Many tools are available today, offering different functions to improve a company's financial capabilities. The following are some of the ways these tools can help you, primarily when improving your credit score. 

Automate your payments

As discussed, timely payments are crucial to improving your company’s creditworthiness. Through a financial management platform, you ensure you don’t miss any deadlines with lenders, suppliers, or other similar parties.

One of these tools' most common features is workflow automation, allowing users to carry out repetitive accounting processes automatically. These include paying bills, loans, and other financial obligations. Through such functions, you ensure that you prevent damaging your creditworthiness by paying on time. 

Many of these tools also remind you of your upcoming deadlines. They will help you become more diligent on your loan and bill payments. 

Tracking your expenses

A financial management tool allows you to monitor your company’s cash flow effectively. Doing so ensures you have enough funds to cover your financial obligations. It’s also crucial to help you avoid maximizing your credit utilization, which, as discussed above, causes significant harm to your creditworthiness.

Many tools allow users to consolidate and organize their debts and other financial obligations. Most have a cloud collaboration feature that lets owners share such crucial details with others. When you do that, you can urge employees to spend company funds responsibly. Plus, it provides an opportunity to share ideas on creating a budget plan to address your venture’s running bills and loans.

Moreover, these tools can generate detailed financial reports to help you gain insights into your company’s financial health. Through these reports, you can identify areas of improvement and make the necessary adjustments to maintain an excellent credit rating.

Allocating your budget

Aside from tracking your expenses, some financial management tools can help you allocate your budget to address your financial obligations more efficiently. By categorizing your existing bills and loans, these platforms can help you set detailed budgets and spending limits on payroll, rent, and utilities. You address debts properly and maintain a healthy credit rating through such features. 

Maintain a Consistent and Healthy Credit Score

A healthy business credit score is vital to your company’s growth. The good news is that, as modern technology grows, many new solutions become available to help businesses achieve excellent creditworthiness.

The key is incorporating these tools with the best practices for improving credit scores, like paying on time or using your credit responsibly. That way, you earn a good rating and boost your venture's financial capabilities.