The term “credit score” is nothing new because most consumers have it. But have you ever wondered if businesses have credit scores too? The answer is yes. Just like people, businesses are also given their own credit scores to determine their credibility as a borrower. Here’s everything you need to know about it:
What is a business credit score?
Like a personal credit score, a business credit score is a number given to a company or organization to make it easier for lenders and banks to determine if it’s a good candidate to become their client or to be approved for a loan.
Also called a commercial credit score, this core is calculated based on factors like your business’ repayment history with suppliers and lenders, credit obligations, longevity of operations, legal filings, repayment performance and even the type of industry that you’re in.
What’s the difference between business credit score and personal credit score?
Although the concept of having a credit score is similar for both individuals and businesses, they are also different in many ways.
For one, an individual would only have a single credit score while a business can have several depending on different factors. Having a good business credit score is also beneficial for keeping insurance rates low, which isn’t the same with a personal credit score.
The FICO scale determines personal credit scores ranging from 300 to 850. But business credit scores are ranked using different numerical scales depending on how it’s evaluated and the type of score given to a business. Another huge difference between the two is the right to privacy.
When you have a personal credit score, you can ensure that only you and the parties you authorize will have access to your score and history. But your business credit score is considered public record so other high risk merchant account holders and banks could access them.
Some companies even offer auditing services for other businesses so you know exactly how your competitor is faring.
Do you need a business credit score?
Finally, a lot of entrepreneurs would say that they don’t need a business credit score since they can apply for a business loan using their personal credit score.
But if you’re going to be smart about financing your business, you know that using your own credit score isn’t always the best move, especially for your personal finances. Moreover, you could take advantage of the many benefits of having your business credit score.
For instance, you get to protect your personal assets by keeping them separate from your business. This means that you won’t have to use your home or car as the collateral for your business loans.
You also get better loan terms if you’re applying for financing as a business because lenders already know that you have bigger needs than if you’re an individual.
Of course, you also get to protect your personal credit score, which is very important to maintain your financial health. So, if your business doesn’t have its own credit score yet, this is the right time to apply for one.