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Depending on your own experience, this story might sound familiar: A business owner goes to a bank for a loan and gets rejected faster than the ink dries on the application.
Why? The bank checked the company’s credit through a major credit bureau and found the score lacking. But the business hadn’t requested its own report. That’s right—credit bureaus provide ratings to third parties to help them assess risk. It’s a tool to measure your business’s financial health and creditworthiness in the eyes of banks and vendors.
Overview of your business credit report
Think of a business credit report as a report card for your company’s financial health. It’s a summary of your business’s credit history, including details about how your company handles its debts and obligations. Lenders, suppliers, and even potential partners look at this report to gauge how trustworthy and stable your business is.
What a business credit report consists of
Credit scores and ratings: These are numerical representations of your creditworthiness.
Credit history: This includes the details of all credit accounts your business has, such as all types of small business loans, credit cards, and lines of credit.
Payment history: It shows whether you pay your bills on time or have had late payments.
Public records: Any legal issues, such as bankruptcies, liens, or judgments, are recorded here.
Company information: Basic details about your business, like its size, industry, and years in operation.
How is a business credit report used?
Business credit reports are like a sneak peek into your business’s financial behavior. Lenders use them to decide whether to approve loans and what interest rates to offer. Suppliers might check your credit report to determine payment terms, and even potential clients could look at it to assess whether they want to do business with you. In short, your business credit report plays a huge role in how others perceive your company’s reliability.
Loan approvals: Lenders review your credit report to assess the risk of lending to your business. A strong credit report can result in lower interest rates and better loan terms.
Supplier terms: Suppliers might extend more favorable payment terms to businesses with solid credit reports, such as longer payment cycles or larger credit limits.
Partnerships: Potential business partners may review your credit report to ensure your financial stability and reliability.
Insurance premiums: Insurers sometimes use credit reports to determine the premiums they charge your business.
Key elements used to calculate your business credit score
Your business credit score is a numerical representation of your creditworthiness which is an important KPI in your business credit report. The information used to calculate this score often includes:
Payment history: Have you paid your bills on time?
Credit utilization: How much of your available credit are you using?
Company size and industry: Larger companies or certain industries may be seen as more stable.
Length of credit history: How long has your business been using credit?
Public records: This includes any legal filings like bankruptcies or liens.
Factors impacting your business credit score
Your business credit score is influenced by several key factors. One of the most important is your payment history. Paying your bills on time shows lenders that your business is reliable and financially responsible, which boosts your score. Another factor is your credit utilization ratio, which measures how much of your available credit you’re using. Keeping this ratio low indicates that your business isn’t overly dependent on credit, which can help improve your score.
The length of time your business has been using credit responsibly also matters. The longer you’ve been managing credit well, the better it reflects on your score. The size of your company and the industry you’re in can affect your score too. Larger businesses and certain industries are often seen as more stable, which can be a plus.
On the flip side, negative marks like bankruptcies, liens, or legal judgments can hurt your score. These public records signal potential risks to lenders and suppliers. Understanding these factors can empower you to manage your business credit wisely and maintain a strong credit score.
The bottom line
Understanding your business credit report is important—the only way to improve your company’s reliability. By staying on top of factors like paying bills on time, keeping credit usage low, and building a solid credit history, you can improve your business’s financial health and credibility.
If your business is grappling with cash flow challenges or hefty debts, Forwardly offers a solution to better financial health. With Forwardly, you can streamline your accounts payable and accounts receivable processes, enabling you to accept payments online instantly and handle bill payments within seconds. This kind of efficiency can significantly improve your cash flow management and strengthen your business’s credit profile, ensuring you’re in a better position to catch the financial opportunities for your business.
Getting started with Forwardly is free, and our streamlined approach takes the headache out of financial management for you.
