If you’re starting or running your business – even if you’re an experienced professional – there’s plenty to learn along the way. Kickstarting a business to life requires skill and knowledge that cannot be possessed immediately. After deciding on the perfect idea, you’ll find yourself slowly becoming an expert in marketing, being an employer, and managing your organization. However, running your business requires that you understand how to manage finances. Your business credit score forms an integral part of finance management. Understanding your credit score can help you make a significant difference in your business journey.
Credit Score: What It Entails
If you’ve had a loan in the past, paid an item in installments, or applied for a mortgage, you have a credit history. Your credit history is a detailed report containing your payments, debts, and overall payment behavior. According to a review done on Best Small Business Credit Cards of 2020 – Compare Offers | Nav, your credit history indicates the level of risk you represent to a financial lender. Any time you apply for finance, lenders use Credit Reference Bureaus (CRBs) to check your past credit behavior; This information calculates your overall score.
Predicts The Probability Of Late Repayment
Compared to how a consumer credit score does for borrowers, a business credit score uses your past credit history to calculate a number to show the risk. This score helps lenders to assess whether there’s a likelihood of a business making late payments. Compared to applying a consumer score, applying a business score only targets the company rather than an individual.
Good Credit Means Better Business
Even if you have a good credit score, this is not enough to win you a good business credit score. We would highly advise against using your credit to support your business credit. If your business is on a rough patch, doing this can easily damage your score. Keeping your business and finances healthy is the best way to maintain a good business credit score.
What Happens When Your Credit Score Is Low?
You can still obtain finances for your business, even with a low credit score. However, this comes at a cost. In most cases, potential lenders will limit the amount you can borrow and increase the interest rate on repayments as they perceive you as a high-risk borrower. Before agreeing on anything, ensure that you calculate the actual borrowing cost and how much the loan will cost you.
Improving A Credit Score
Even with the strict measures, you can improve your credit score. The best step is to start by being mindful of your finances. You should ensure to make your repayments on time and use it consistently. Additionally, it will help if you keep your credit card utilization low; this means that you should avoid borrowing more than the required percentage of your card limit. You can also reach your card issuer to issue you with your latest credit score. This helps you to check for any errors in the data and whether the calculations are done correctly.
Plenty of activities are involved when you’re setting up your business. Sometimes, it can be easy to ignore your business credit score. However, this guide will help you keep track of your rating and how to improve your score. Finally, remember that better credit management leads to better scores, lowering your borrowing cost.