Once you start a business, you have two credit scores to monitor: your personal credit score and your business credit score. While both credit scores serve the same general purpose of determining creditworthiness, business credit scores work much differently, so your knowledge of personal credit scores doesn’t necessarily carry over. Here’s what you need to know about business credit scores.
Each Business Has Multiple Credit Scores
The four nationwide credit reporting bureaus in Canada are Equifax, Experian, TransUnion, and Dun & Bradstreet. Each bureau gives your business a credit score. Unlike the 300 to 850 scale used for personal credit scores, business credit scores are typically between 0 to 100, but this varies between bureaus. Equifax, for example, issues three credit scores: a credit risk score from 100 to 992, a business failure score from 1,000 to 1,880, and a payment index score from 0 to 100. Each bureau prioritizes different factors when assigning credit scores, which means your business could have a much higher score with one bureau than another.
Anyone Can Check Your Business’s Credit Score
Because of consumer protection regulations, you must authorize a credit inquiry before another party can check your personal credit score. These regulations don’t apply to business credit scores. Anyone can check your business credit scores by paying for the reports. Since you never know who is going to run your business’s credit or which bureau they’re going to use, it’s important to build and maintain a high business credit score across all the credit bureaus.
Building Business Credit Takes Time
One thing personal and business credit scores have in common is that both take time to build. It’s a gradual process, but by following a few simple steps, you can improve your business credit score with every credit bureau:
- Obtain lines of credit in your business’s name, such as business credit cards.
- Avoid using more than 20 to 30% of your total available credit.
- Pay all your bills by their due dates or in advance whenever possible.
It’s always better to get started on this immediately so you have the highest scores possible if you need to apply for a loan.
Lenders May Check Your Personal and Business Credit Scores
Unless your business has been around for years and has excellent credit scores, lenders are also going to check your personal credit score and require a personal guarantee when you apply for a loan. This makes you responsible for the loan, so the lender has an additional recourse besides just coming after your business if you default. Even while you build your business credit, you should keep your personal credit score high, as both could be important in obtaining a business loan at a low interest rate. Your business’s credit score plays an important role in its future financing options. Take the right steps to build a high score and check credit reports regularly through each of the credit bureaus to keep track of its progress.