A business credit score is an assessment of the financial health of a business, usually offered by a major credit bureaus. The scores are also known as a credit profile, reflecting all the information contained within the credit report. Businesses regularly ask for a copy of their business credit score, so that they can understand and manage their risks. Most companies do not expect their business credit score to rise very high, unless there is an unusually large amount of business that they are getting. Therefore they do not stress about having a good score, unless they are actively involved in their companies' finances.
There are several components of a business credit score, including the Experian credit utilization score and the Experian credit report. The Experian credit utilization score measures the extent to which customers are using their cards, and this figure should be calculated based on past use rather than on current use. If a business does not make use of its cards on a regular basis, then it would have a high utilization rate, and therefore, it should have a high utilization score. The Experian credit report measures the extent to which customers have actually reported late payments and other delinquencies.
There are various different sources from where business credit score data can be obtained. The most common ones are Experian, Equifax and TransUnion. All the three companies offer different versions of the reports, based on the various details contained in the various reports. Each of these firms charge different fees for retrieving the data.
Another important factor determining business credit scores is the amount of debt that the company has. When a business is first established, all the cash that it has initially comes from credit card sales. As it starts to expand, more cash is required and the capital becomes short. All this results in the business having more delinquencies and a lower business credit score.
An important aspect that determines business credit score or personal credit score is the frequency with which the accounts are used. Companies that have a high frequency of making credit card purchases are seen as less efficient than those that do not use their cards as often. The companies with higher utilization rates are penalized by Experian, Equifax and TransUnion, and their business credit score and personal credit score are negatively affected.
Small business lending requires the businesses to report all the transactions. The more transactions made, the more are the chances that the data would be used. So, the small business lending institutions rely heavily on Experian, Equifax and TransUnion in order to come up with accurate and complete figures. Businesses should ensure that they make use of this data in the process of small business lending.
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