How to Protect Your Business Credit Score During the COVID-19 Crisis

Baruch Silvermann July 1, 2020

With everything that’s happening with the COVID-19 crisis, it’s hard for businesses to even continue on let alone keep their credit score up. In fact, their credit score seems like it doesn’t even matter when it comes to all the other things that are happening, but it’s actually extremely important.

If your business is not able to stay above ground on its own you may need to take out a loan. And if you don’t have a good credit score then getting that loan can be extremely difficult.

Understanding Business Credit Scores

A personal credit score is going to tell banks and other financial institutions just how creditworthy you are and it’s going to let them know if they should lend you money. A business credit score is going to do the same thing, but it’s going to do so from a different standpoint. It’s going to show how creditworthy your business is. That way, you will be able to get the type of loans or other credit that you need to keep your business going.

But it’s not just lenders that want to know about your credit. Vendors, landlords, insurance companies, and even suppliers want to know that you have a good credit rating before they make the decision to go into business with you.

Now, when it comes to business credit scores you’re looking at three different credit bureaus. Two of them are the same that you would find for a personal credit score, Experian and Equifax. However the third for a business credit score is Dun & Bradstreet. Each of these will provide you with a credit report and a score that’s based on the FICO Small Business Scoring Service. You’ll get a number between 0 and 300.

Every business credit bureau uses a slightly different method to give you a credit score, however, you’ll get a score that comes in somewhere between 1 and 300, with the higher the score being a better result for you. If we look at Experian, for example, they look at three primary factors:

1. Credit – This is about the amount of experience you have with trade, the balances you have outstanding, how well you make payments, how much credit you use, and how you’ve been doing with all of these areas over an extended period of time. They’ll look at how long you’ve actually had credit, both in the personal sense and the business sense. The credit bureaus look at how long you had a loan, how much you took out, how long it took you to pay them and more. And that’s what all the people looking at your credit score want to know as well.
2. Demographics – This is where they’re going to look at just how long your business has been around, what your Standard Industrial Classification code is, how much risk you are, and other historical factors to determine whether or not they should work with you.
3. Public Records – Whether or not you pay off your debts on time and as you’re supposed to be extremely important. If you have a history of liens and judgments or bankruptcies the company is less likely to want to work with you.

How Is Your Personal Credit Score Related to Your Business Credit Score?

Your business score is not the only thing that a potential lender or business associate is going to look at. They also want to know more about your personal score. While this is entirely separate from your business score, it can say a whole lot about you as an individual and as a business owner. If your business is new or if it’s a sole proprietorship that’s even more important.

Keep in mind that you may need a personal guarantee in order to get a specific type of business account or specific types of business funding. This is especially true if you don’t have a lot of history as a business. It’s extremely important that your personal credit history be good enough to support whatever it is that you’re looking for.

Now, that’s not to say that you should use your personal score for anything and everything with your business. You want to keep your finances as completely separate as possible to make sure that it’s going to look like an actual business and have the credibility that it needs.

You want to make sure that credit for your business is actually issued directly to the business rather than being directed at you. That’s also going to help you protect yourself personally from some types of business problems.

Keeping Your Business Credit Score Up

So, what do you do to make sure your business credit score is holding strong? There are a number of things that you should be doing.

1. Get Rid of Inaccurate Information

The most important thing that you can and should do is dispute anything that’s inaccurate. If there are mistakes, details that aren’t quite right or things that are absolutely not you it’s essential to file a dispute with the credit bureau that’s reporting those false claims.

Reporting agencies are required to update your credit report if there is false information on it, so make sure you’re doing everything you can to get things looking good. You want your potential associates and creditors to see only the true things on your report.

2. Make On Time Payments

On time payments are something that any lender or associate wants to see. They want to know that they are going to get their money on time and just the way they’re supposed to. So, how do you make sure that happens? You pay everyone you owe, when you owe them.

Each of the credit bureaus is going to give you different marks for making your credit payments on time, but this is an extremely important factor. You want to be seen as a quality investment and that’s only going to happen if you can be trusted. Make sure you’re also getting some form of credit and using it regularly (but not too much of it) to help you establish a score at all.

3. Borrow From Lenders that Report to Credit Bureaus

Not every lender that you work with is going to report to a credit bureau. If they don’t that means it doesn’t matter if you’re making the payments on time because they’re not going to help you at all. Make sure you know what credit bureau your lender reports to and that they are reporting. That’s how you’re going to get your score up.

A bank is likely going to be the best way to do this because nearly all of them will report to the credit bureau. But there are other institutions that do as well.

4. Monitor Your Personal Credit

Even though you’re trying to establish yourself as a business owner and you want your business to have a great score you also want to make sure you’re keeping your personal score up.

That’s because some of the credit bureaus will look at both scores and count your personal score into your business one. If you don’t have a good personal credit score it can hurt you in the long run.

5. Keep Your Debt Down

Try to pay down your debts as quickly as possible and make sure you’re not putting too much debt on your credit cards.

That’s going to help you keep your score higher and it’s going to make it easier for you to get additional credit if you ever need it.

Conclusion

Make sure that you’re always paying attention to your business credit score and that you’re doing everything you can to keep on top of things. The more you pay attention to your business credit the better off you’re going to be as a business owner.

Business & Finance Articles on Business 2 Community

(40)