For many years, consumers have been able to track their ability to borrow money and receive credit from banks and other lending institutions through a system that rates their creditworthiness on a scale known as a personal credit score. Today companies have that same option. Several major credit reporting companies, such as Experian, Equifax, Business Credit USA, and Dun and Bradstreet now maintain nationwide small business databases and have developed a business credit scoring system that can allow consumers, vendors, and other companies qualify the credit. of small businesses.
A business credit score will help banks and other lenders approve or deny credit, as well as determine the level of interest to be paid on all new business loans. The higher the business credit score, the lower the interest rate. The lower the business’s credit score, the more difficult it is for that business to obtain credit, especially at favorable market rates.
Businesses will need to self-monitor their business credit score just as consumers need to keep a close eye on their personal financial credit score. If there are bad debts or past bankruptcies on their business credit files, they will have to take action or risk being turned over for future credit applications. Having a good business credit score will be an important factor that will need your personal attention.
Some businesses, banks, and other lending institutions have long had their own business credit scoring systems to classify their business customers and determine the appropriate level of interest rate to charge them for business loans. In recent years, more and more of these creditors have begun purchasing business credit reports from business credit bureaus.
Business credit bureaus will continue to collect additional information about businesses, including their payment history and other data they deem useful in determining the financial health of a business. They bundle them together as business reports and sell them to banks and lending institutions so they can evaluate business credit applications. Combined with the business credit score, they are now much more confident in profiling not only a business’ past credit history, but also in predicting its future patterns and trends.
