Understanding and Building Your Business Credit Score

Understanding and Building Your Business Credit Score
Grant Olson

Grant Olson

If you’re a small business owner seeking financing, lenders will consider multiple factors before approving a loan. They’ll be interested in your tenure, experience, and industry—among other things. Nearly all of these factors can be boiled down to one crucial question: How likely are you to repay the money you borrow?

While there are no simple answers to this question, your business credit score is a user-friendly number that gives them a quick idea of your reliability. This score accounts for your business debt usage, personal debt usage, business debt coverage, personal debt coverage, business revenue trend, and personal credit.

“Just as the bank reviews your personal credit score and credit history when you apply for a car loan or mortgage, creditors review your business credit score and history when your business applies for a credit product,” explains credit expert Kimberly Rotter. “Your business score tells them how much of a credit risk your business poses based on past financial behavior.”

Given the importance of your score, it’s important to know how to build and sustain it. Inaction is always an option, but this is a situation where you ignore your meal ticket at your peril.

How Do I Find Out Where My Score Stands?

Lenders can access a handful of business credit score sources while considering your application. They include:

While you may be unfamiliar with these credit reporting agencies, that doesn’t mean you should let them manage your credit in the shadows. It’s always wise to take a proactive approach and regularly monitor your score.

There are plenty of ways to check your score with a fee, but here are 5 ways you can get an update at no cost:

Nav: This convenient service lets you check both your personal and business credit history. Nav can access the reports from Experian and Dun & Bradstreet, giving you a rounded view of your finances. As a bonus, Nav provides resources like a goal-setting tool to help you stay on an upward trajectory.

CreditSignal: Although this service only gives you access to your Dun & Bradstreet report, it offers a wide range of perks that make it a great option. One of the best things about it is that you can sign up to get alerts anytime your score experiences changes.

Credit.net: This more upgraded option includes a week-long trial that’ll provide free credit reports, but then you’ll be prompted to pay for the services if you wish to continue. A key advantage of the Credit.net paid packages is that they connect you with an expert who can alert you of issues and provide strategies for boosting your score.

CreditSafe.com: Here’s another try-before-you-buy option. You’ll get free access to your credit report, as well as CreditSafe’s suite of monitoring tools. The website’s dashboard is loaded with resources to educate you on best practices for managing your credit.

Apply for a small business loan: This approach is the most indirect method of checking your business credit score, as it’s merely a final step that many people neglect in the loan application process. If your loan application has been rejected, you’ll receive correspondence directly from the credit bureau that the lender used to verify your credit. You can respond to this letter within 90 days to receive a free business credit report.

What If My Score Isn’t What It Needs to Be?

Entrepreneurship is a volatile pursuit, so it’s common for small business owners to have blemishes on their financial track records. There are also track record issues for new businesses, as they haven’t had an opportunity to amass the data points necessary for a solid score.

In these scenarios, your personal credit score takes an oversized role. As mentioned above, it’s already 1 of the factors included in your business credit score. So whenever a business credit score is inadequate, your personal credit score can be used by lenders as they make their decisions.

The good news is that there are small business financing products that are particularly relevant for borrowers who lack a convincing business credit score. Due to their unique structures, lenders can look at other factors as they make their approval decisions, such as:

Business line of credit: This versatile type of financing provides revolving credit for a variety of business-related expenses.

ACH loan: Instead of focusing on credit scores, lenders base ACH loan decisions largely on the performance of your business.

Merchant cash advance: Your future earnings take center stage with a merchant cash advance, making your financial history less relevant.

Any of these 3 financing options can be helpful in the short term, but you’ll still want to focus on building your business credit score and getting access to a wider array of financing in the future.

While there are many strategies you can use to improve your business credit score, the most important element is awareness. Many entrepreneurs never check their scores, essentially throwing their hands in the air and saying whatever happens will happen.

This strategy is problematic because you’ll never know which aspects of your finances you should focus on improving without the insights available in your credit report. Additionally, up to 20% of credit reports contain errors. Your report may fall into this camp, so be sure to monitor your credit carefully.

If you find errors with any of the major bureaus, you need to take prompt action to get them corrected. You can follow the directions contained at the bottom of all credit reports regarding how to dispute incomplete or inaccurate information. You can also review this resource from the Consumer Financial Protection Bureau for additional information.

As you take an active role in your business credit, you’ll become a more powerful advocate for your small business. Building credit is a long and dynamic process, but every step forward, no matter how small, yields positive results for your business.

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on Lendio.com, FitSmallBusiness.com, and ModernHealthcare.com. Grant is also the author of the book “Rhino Trouble.” He has a B.A. in English from Brigham Young University.

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