Your business credit score, like your three-digit personal FICO score, is a number that sums up your business creditworthiness for banks and other lenders. Unlike your personal credit score, the major reporting agencies don’t all use the same scale to rate your business credit. And, like your personal credit score, a higher score is an indication to lenders that you are a better candidate for a loan.
There are three major credit-reporting bureaus that deal with business credit, and they all work slightly differently. The most prominent bureau, Dun & Bradstreet, produces the Paydex score, which operates on a scale of 0 to 100. Experian and Equifax, have their own scales for analyzing personal credit. And, just like your personal credit score, you should regularly monitor your business credit.
How can you keep your score high and your credit profile healthy? You might be surprised at just how simple it is to damage your credit profile. These five easy-to-make mistakes can be catastrophic for your credit score:
1. Paying your bills late is a big mistake
It may sound obvious, but consistently paying your bills late can take a serious toll on your business credit report. In this case, business credit works similarly to personal credit: paying your bills on time is essential to keeping your score healthy. What’s more, establishing a record of paying on time is the single most important way to show potential lenders that they can trust you to pay them back on time as well.
2. Applying for too much credit at once isn’t a good idea
Asking for too many lines of credit at once signals that you’re desperate, and you may be overextending yourself. Just as building a successful business takes time, so does building a good business credit profile, and thus your applications for additional lines of credit should be spread out over time. The informational site Paydexscore.net (which is not affiliated with Dun & Bradstreet) suggests building your score for three to six months before applying for a loan, which means applying for a line of credit, being accepted, and then paying your bills on time for those three to six months.
3. Avoiding credit altogether actually hurts your score
Not all debt is the same. Having a few business credit cards or loans that you pay off every month shows that your company can manage debt responsibly.
While some business owners see it as a badge of honor to never use credit, any potential lender wants to see that you have successfully borrowed and paid back your debts. If you haven’t, lenders may be hesitant to lend you money. Plus, as a business owner, you want the world to know that you pay your debts.
4. Vendors that don’t report to the credit bureaus keep you down
When you do establish business credit, keep in mind that not all creditors and suppliers report their trade information to Dun & Bradstreet and the other bureaus. Check with your vendors, especially if they are small or mid-size companies, to make sure they’re reporting. Otherwise, those prompt payments you’re making might not be helping your score at all.
5. Ignore your credit report at your own peril
Like your personal credit report, your business’ credit report could have errors that damage your reputation and your ability to acquire additional credit. An FTC report last year found that one in five Americans had errors on their personal credit reports, and business credit reports, though not in the news, certainly are not error-free. Fortunately, the credit bureaus want accurate data and are willing to investigate any identified mistakes. Check your reports at the three major business credit-reporting agencies (Dun & Bradstreet, Equifax, and Experian) to make sure that none of them contain any mistakes.