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What is a business credit score?

What is a business credit score?

There are many aspects of a business that make it necessary to take on significant debt, often much larger than individuals might take on. For instance, a company may need money for equipment or operations or a vehicle for business-related travel which may require a loan.

When offering loans to businesses, lenders will seek to verify that the organisation is capable of servicing the debt and making timely repayments. One way of doing this is by checking the business credit score, which helps lenders make informed decisions about lending to a company.

What's a good business credit score?

Depending on the business credit reporting agency, a company’s business credit score ranges from 0 to 1,200. According to the credit rating agency Equifax, business credit scores above 833 are considered excellent. There are some instances in which your business may not have a credit score at all.

One example of not having a business credit score is if you haven’t registered your business name with the Australian Securities and Investments Commission (ASIC). Another example is if neither the business nor the owners or directors have had any credit enquiries registered with any reporting agency in the past five years.

In general, a higher business credit score gives lenders the confidence that your business will not default on, or fail to repay, the loan or line of credit. Other organisations engaging in financial transactions with your company may prefer to access your business credit score rating or report. Such information usually includes details on the different factors that affect your business credit score. If you’re concerned about your business’s credit rating, accessing this report will help you see how you can improve your rating.

How to build your business credit score

Several factors can affect your company’s business credit score. These factors can include how long you’ve been operating your registered business and the kind of financial transactions conducted during this time. A long and rich history of moderate borrowings and timely repayments may ensure that your company has a high business credit score.

A few basic checks can help keep your organisation’s business credit score at a respectable level, including:

  • Verifying that the credit reporting agency has accurate information, especially about the financial performance of your business
  • Setting up and sticking to payment terms with suppliers and contractors
  • Keeping debts in check and ensuring that you repay them all as per the loan terms
  • Keeping personal debts and business debts separate

Some of the incidents your company should avoid to build a high business credit score include:

  • Continued cash flow issues
  • Multiple loan applications within a short duration
  • Legal disputes or action against your company
  • Vendors reporting a payment default
  • Any of the company’s directors filing for bankruptcy
  • Directors getting disqualified for reasons of business impropriety

You should remember if any of the directors or owners of the business have been insolvent in the past seven years, the company may not have a credit score at all.

How to check your business credit score for free

You’ll likely need to reach out directly to a credit reporting agency to check your business credit score, and they may charge you for the report. Some websites may let you check your business credit score online for free if your business is a smaller-sized one. To get this information, you’ll need to provide your Australian Business Number (ABN), how long you’ve been in business and your annual revenue. 

Does a business credit card affect your personal credit score?

Getting a credit card, and accumulating debt on it can impact the business credit score of the company without impacting the personal credit score of any of the owners, directors, or managers of the company. A business credit card may be offered by a bank which also transacts with the business in other ways. Such as by hosting business transaction account or lending business finance. 

The services that a bank will offer depends on the financial profile and creditworthiness of the business, and the business credit score is an essential factor. Not having a business credit score may prevent your company from being issued a credit card. 

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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