Business Credit Score: What It Is and Why Should You Care About It?

person reading about credit score on laptop

If you’re a person who has a credit account, and you’ve had to finance your mortgage or car loan, you’ve probably heard of credit scores.

Investopedia defines credit score as “a number between 300 and 850 that depicts a consumer’s creditworthiness.” Lenders look at your credit score to determine whether you could pay loans on time, which will help them decide whether to lend you money or not. The higher your credit score is, the better.

But it’s not just individuals who have a credit score. Businesses, too, are evaluated for their creditworthiness based on their credit scores.

What is Business Credit Score?

If you’re a business owner, your company gets a credit score that tells banks and other lenders whether they should grant you loans. A business credit score is based on many factors, including:

  • Your company’s credit obligation
  • Your company’s repayment history with lenders
  • Your company’s legal filings, such as bankruptcies or tax liens
  • Your company’s repayment history relative to similar companies

Like your personal credit score, the higher your company’s credit score is, the more likely lenders are going to grant you loans.

person handing a pen to another person

Why is Business Credit Score Important?

While you may have an excellent personal credit score, it’s not advisable to apply for loans for your business in your name. Your business might run into hard times and its debts might reflect directly on you if the loans are under your name.

So, it’s important to build business credit and apply for business loans under your company’s name. But this is not the only reason your business credit score is important. We highlight more reasons why building your business credit score is essential below.

  1. It speeds up your loan application

When a business is applying for a loan, lenders use different criteria to determine whether they should approve or reject each. The most important factor is the result of their credit risk analysis, which reveals a business’ creditworthiness.

So, if you’ve built up a good credit score, it gives your application a boost, helping it move through the process quicker.

  1. It helps you get better loan terms

Lenders are more likely to offer favorable loan terms to businesses with higher credit scores. Like we mentioned above, one of the things your credit score shows is how good your business is at repaying debts.

Having a high credit score shows lenders that your business doesn’t pose a huge risk of defaulting. They will not feel the need to cushion that risk with high interest rates. As a result, you can get a business loan with low interest.

  1. You can attract more investors

Like any good business person, no investor will want to risk their money on a company that has a bad credit history. But, a business with a good credit report? Potential buyers will come flooding in.

The best thing about attracting investors, apart from the financial backing they provide, is that they paint your business in a more positive light. The more investors you have, the more secure your business is, which makes it more attractive to other potential business partners and lenders.

  1. You can get ahead of your competitors

A good business credit score indicates that your company’s finances are good. This means you can confidently make decisions for the improvement of your company with little concern for whether you could afford these improvements. And when your services are better, you get ahead of the competition.

What’s more, if your business gets low-interest loans, you can pass the interest savings onto your customers or maintain a larger profit margin.

All of these show how important business credit score is. It can make or break a business. If you work on improving your business credit score, you’ll enjoy these benefits in no time.

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