Business Credit 101: The Basics

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Knowing the basics of business credit is a skill that all entrepreneurs should possess. Not sure where to start? Learn what your business credit score is, how it’s different from your personal credit score, and why it’s important in the first installment of our business credit blog series below.

What is a business credit score?

Your business credit score represents your business’s credibility as a borrower. Having a high credit score can help your business open credit cards, secure more lucrative financing options, and negotiate better lease terms. Once you start your business, obtain an EIN number, and get a company bank account, business credit bureaus will start gathering information about your company by looking at public records. Your business credit score is determined by multiple factors such as:

• Age of the company
• Assets
• Outstanding debt
• Payment history
• Industry
• Size of the company

How is a business credit score different from a personal credit score?

A business credit score and a personal credit score are independent of each other. Although they are similar, the 3 main differences are:

• Your personal credit score measures your creditworthiness as an individual, while your business credit score measures the creditworthiness of your business.

• Your business credit score is actually connected to your company’s EIN number whereas your personal credit score is tied to your social security number.

• Business credit reports are only available from a small number of credit reporting agencies such as Dun & Bradstreet, Experian, and Equifax.

Should I keep my personal and business finances separate?

Your business should run as its own entity, with a clear financial separation from you as an individual. Keeping your personal finances separate from business finances is crucial in helping you:

• Build up credit for your company
• Protect your personal credit standing
• Prevent and spot fraud

Your business credit score takes time to build up, so if you’re just starting out, check out these tips for climbing the ladder of credit. If your company is younger and lacks a business credit score, you may still be able to qualify for small business funding if you have a strong personal credit history.

Why is it important to have good business credit?

A high business credit score shows potential creditors and investors that your company is financially healthy, creditworthy, and thriving. Having a high business credit score can also help your business get:

• Lower interest rates and better terms when you apply for business financing
• Improved odds of qualifying for funding
• Lower insurance premiums
• Higher credit limits with vendors  
• Better terms with new suppliers

Need help establishing credit?

Our small business term loans or business lines of credit can help you establish and improve your business credit. For more information about how we can help you business, click here.

Stay tuned for the next blog in our business credit series featuring common mistakes that entrepreneurs make that hurt their credit scores and tips on how to avoid them.

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