It’s probably very likely that you know that you have a personal credit score, and, if you are really on top of things then you probably even know what that score is. But, as a small business owner, do you realize that your business also has a credit score?
Is a Business Credit Score the Same as a Personal Credit Score?
A business credit score does not follow the same index as a personal credit score, typically FICO. Your personal credit score is a three-digit number that ranges from 400-850 (ideally much closer to the top of that range!). Your business credit score is probably based on the most common business credit score system, called Paydex. This index gives your business a score between 0-100, with 75 or above being considered the “good to excellent” range.
Why Do I Need a Business Credit Score?
Building up your business credit score is just as important as your personal credit score. It will help you expand your business over time by being able to secure business loans or get financing for expansions, equipment, and investments. Instead of relying on your personal credit score to get loans and financing, you can get the financing you need based on your business credit score.
Also, it is important to be able to separate your business and personal finances. This is not only important for tax purposes, but also for liability and other reasons. In the event that your business fails, your personal credit will not be affected. That may allow you to head in a different business direction or rebuild, without harming your personal credit. If you had to file bankruptcy because of a failed business, you may have that follow you for up to 10 years.
How Can I Raise My Business Credit Score?
There are several important things that you should do if you want your business credit score to stay strong or improve. Here are four great tips:
- Make every payment on time. Just like your personal credit, your business credit score will be affected by your payments. Making every payment on time will help keep your business credit score strong. It will also help it continue to rise as your business looks like a good credit consumer. Not only does this help your credit, you also avoid penalties and late fees!
- Keep your debt at a manageable level. Even if you need to take out a loan, you want to make sure that you are not overutilizing your available credit. Monitor any revolving debt to make sure that your ratios stay in a healthy range. If your credit utilization becomes too high, your credit score will drop.
- Use the credit that you do have. Don’t just let your business credit card sit there and gather dust. It should not be reserved just for emergencies! Make regular purchases and payments. This will help you to establish and build credit. Plus, if you use the right business credit card, you can accumulate rewards points and get cash back or other rewards!
- Monitor your business credit report. Just like your personal credit report, you need to monitor your business credit report. Make sure that the information contained within it is accurate and current. Any inaccuracies should be immediately reported.
When you can build up a great credit score for your business, it becomes easier to separate your business and personal expenses, taxes, and liabilities. Build a stronger business by developing a credit history specific to the business. You will find it easier to invest, build, and watch the business grow.