Credit Check – It’s National Credit Education Month

Credit Check – It’s National Credit Education Month 

Mindy Barker | Barker Associates

March is National Credit Education Month. If you’ve ever applied for a credit card or a car loan, you know the importance of having good credit. At its foundation, it demonstrates to a lender how likely it is that you will repay your debt on time. Having good credit benefits you in countless ways, while having bad credit can challenge you in just as many. 

This month serves as an important reminder for us all to check our credit scores and implement tools and tips to help improve it, if need be. Overall, it’s about increasing our knowledge around credit, including the amount of debt we carry, the age of our credit history, reports to collection agencies, the effect of late payments, high interest, and hard inquiries, and the number of accounts we have. 

While this monthly designation is focused on personal credit, both maintaining it and improving it, it also presents an ideal opportunity to look at the importance of business credit. Just as with personal, its significance lies in showing a lender your reliability in paying back debt on time. Simply, consistently monitoring the financial health of your business is a crucial part of running a successful business. 

What is a Business Credit Score? 

Similar to a personal credit score, a business credit score (also known as a commercial credit score) is the primary indicator of your business’s creditworthiness. It’s a number that indicates if a company is a good candidate for a loan or other extension of credit by vendors or partners. One difference from a personal credit score is the numbers themselves. Instead of the 300 to 850 on the personal side, a business credit score ranges from 0 to 100 and will be reported most often on Equifax, Experian, and Dun and Bradstreet. 

To determine if your business is financially risky or stable, consider the following factors: 

  • a company’s credit obligations;  
  • repayment histories with lenders and suppliers;  
  • any legal filings, such as tax liens, judgments, or bankruptcies;  
  • how long the company has operated;  
  • business type and size; and  
  • repayment performance compared to that of similar companies. 

Why is Business Credit so Important? 

If a company wants to take out a loan to purchase equipment, lease property, or obtain better terms on a supplier contract, the lender/supplier will consider its business credit score. The lender will also consider the company’s revenue, profits, assets, liabilities, and collateral value of the equipment or property, if applicable. Essentially, you will need your profit and loss statement and balance sheet ready for review. In some instances, particularly with small businesses, lenders often check both business and personal credit. 

Having good credit for your business will help you qualify for financing faster and easier to purchase an asset or help cash flow issues. It may also help you secure lower interest rates, saving you money over the life of the loan. Another benefit is the likelihood of getting better repayment terms with suppliers, helping your cash flow remain positive. Further, having a strong business credit score can help protect your personal credit score. Without business credit, lenders will have to rely on your personal credit. You should try to avoid this situation, if at all possible, as it increases your credit utilization ratio, and consequently, increases the likelihood of a negative impact on your personal credit. And if something happens with the business, it could take you years to fix it. 

Five Steps for Establishing and Improving Your Business Credit 

The following five steps can help establish and then improve your business credit score: 

  1. Open a business bank account 
  1. Open a business credit file (for example, on Dun & Bradstreet) 
  1. Get a business credit card 
  1. Establish a line of credit with your suppliers or vendors 
  1. Pay all of your bills on time 

Barker Associates provides strategic guidance to companies of all sizes. While we provide the higher level of strategy your company needs to grow, we also never minimize the basics, including the importance of business credit. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.  

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