Open Business Credit That Reports
When you open a business account, the creditor or vendor must report your account activity to a business credit reporting agency before the account can help you establish credit.
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How Information Is Added to Your Business Credit Report
The business credit bureaus use information submitted by creditors and vendors (aka data furnishers) to create credit files for businesses. Once you have a business credit file with a commercial credit reporting agency, a Business Credit repoart on your company can be created and sold to others who wish to review it.
Naturally, a vendor or lender might want to access your company’s credit report when you apply for business financing. However, there are other reasons a company might want to review your business credit as well.
Insurance companies, for example, may review your business credit when you apply for a new policy. The condition of your business credit can even affect your insurance premium. Businesses who are considering working with your company might also review your commercial credit to assess the health of your business..
No Right to Privacy
Anyone can review your business credit reports for any reason. There’s no right to privacy when it comes to Business Credit reports. The business credit bureaus can sell your credit information to anyone they wish.
This is one more reason why working to establish and maintain strong business credit is an important responsibility to add to your to-do list.
Business FICO Score
Your business has not one, but many credit scores. You’re probably familiar with FICO Scores from personal lending. If you ever purchased a home, financed a vehicle, or opened a credit card account, there’s a good chance your lender reviewed your personal FICO Score as part of the application process.
FICO is dominant in the personal credit score marketplace. 90% of top lenders use FICO Scores when making consumer lending decisions. Yet FICO Scores are very relevant in the business credit score marketplace as well.
The FICO SBSS
F ICO SBSS, is a popular credit score used by lenders and financial institutions to help predict risk when businesses apply for financing. The FICO SBSS Score, with a range of 0 to 300, is a hybrid score which considers both business and personal credit together. The higher your score, the better your likelihood of making on-time payments to a business lender.
If you want to earn a decent FICO SBSS Score (and you should because lenders commonly use it), you’ll need to focus on maintaining healthy credit reports – both business and personal. On-time payment history, low credit utilization on credit cards, and lengthier credit history are all factors that could potentially improve your FICO SBSS Score.
All Business Credit Scores Matter
Lenders issuing Small Business Administration (SBA) loans commonly use FICO SBSS Scores. If your business applies for an SBA loan, your FICO SBSS Score typically must be 140 or higher (often 160+) to be eligible for financing.
FICO SBSS is a popular credit score, used by more than 7,500 lenders around the United States. Still, it’s not the only business credit score you need to monitor.
Different commercial lenders use different credit scores. As a result, you should keep an eye on your business credit reports and other factors that can influence your many different business credit scores.
You can’t control which credit score a lender uses to review your application. You can, however, learn which factors affect your business credit scores in the first place. By understanding what factors will shape your scores, such as payment history and credit utilization, you can work toward building business credit reports which perform well under the scrutiny of multiple business credit scoring models.
Benefits of Business Credit
Good business credit can pay off in many ways. Here are five great benefits your company may be able to enjoy when you put in the effort to build your business credit.
- Qualify for financing. Small business owners were turned down for business funding in the past five years. Although credit isn’t the only factor lenders consider, good business credit scores can improve your odds of approval the next time you fill out a business credit application.
- Save money. Good business credit can lead to lower insurance premiums, better rates and fees, and smaller deposits when you take out a new lease or service for your company..
- Keep your personal finances and business finances separate. Separating your credit can protect your personal credit reports and simplify accounting.
- Shop for better business credit card and loan options. When your business credit is in great shape, you can likely afford to shop around for the best rates and offers different lenders have to offer.
- Increase the value of your company. If you ever hope to sell your business or attract investors in the future, a strong business credit profile can be a strong selling point.