Access to credit can be a lifeline for a small business, yet many owners have trouble securing financing because of their credit scores. Credit scores vary depending on which bureau is used, and reporting may include a business credit score and/or personal one.
Small business owners may choose to use personal credit scores for business, particularly when just starting. Others may choose to establish a business credit history and score. Lenders vary on which score they’ll check —and some may use both. Personal and business credit scores may positively or negatively impact each other. It is best to maintain good standing on both.
According to the Federal Reserve’s “2022 Small Business Credit Survey,” only 39% of companies with good credit scores (80-100 business/720+ personal) and eight percent of those with poor credit scores (1-49 business/<620 personal) received all the financing they sought.1
Who sees your credit score?
Only lenders and organizations with legal rights to do so may obtain consumer credit reports. However, business credit reports are publicly available. Many organizations check business credit to evaluate a company’s financial stability. Your credit score could determine loan approval and interest rates, insurance premiums and payment terms, among other things. These organizations include:
Vendors considering extending a net-30 account for new businesses.
Insurance companies evaluating risks of insuring your company.
Investors determining whether to offer funding.
Customers or others evaluating financial soundness before signing a contract or partnering with your business.
Dun & Bradstreet, Equifax and Experian are business credit report providers. While scores may vary, the reports generally include business ownership and subsidiaries, financial information, collections, liens, bankruptcies, and risk scores.
What affects your credit score?
Credit scores are important indicators of how well you manage personal and business finances. They are often the determining factor for whether you’ll receive the funds you need to grow your company. You could damage your business or personal credit score when you do these five things.
It's not uncommon for a business credit report to contain incorrect information due to fraud or errors. This might include accounts that belong to another company, inaccurate years in business, and even the wrong industry. Errors like these can lower your business credit score, so it's important to check your business credit report at least once per year. If you find any errors, each agency has a dispute resolution process to request corrections.
Apply for credit too often.
When you apply for a credit card or loan and the potential lender or creditor checks your credit, a hard inquiry appears on your credit report. One inquiry typically has little impact on your business credit score. But hard inquiries show that you intend to take on new debt, so several inquiries within a few months can negatively impact your score.
Max out your card limit.
The credit utilization ratio (CUR) represents the amount of credit in use divided by total credit available. For example, if your business credit card has a $1,000 limit and a $500 balance, your credit utilization ratio is 50%. Some business credit scoring models incorporate CUR into risk analysis when determining creditworthiness. The credit utilization ratio for a maxed-out business credit card will be high even if you pay the balance in full each month. That can hurt your business credit score.
Credit bureaus favor businesses that keep credit utilization rates well under 30%.2 Some financial experts are even recommending no more than 10%. So, charge as little of your card’s credit limit each month as possible. You can also ask your bank to raise the credit limit on your business credit card, which will lower your utilization rate.
Payment history is a key factor influencing business credit scores. Failure to make on-time payments to lenders, credit card companies, or suppliers, can result in reporting to one or more of the credit bureaus and a lower score.
Even accounts that aren't reported to the credit bureaus can impact business credit scores if they go into collection or result in a lien. Derogatory public records — such as collections, liens, judgments, and bankruptcies — also appear on business credit reports and remain there for anywhere from 36 months to nearly 10 years.3 To avoid unfavorable reports, pay utilities, suppliers, creditors, and tax agencies on time, every time.
Cancel the card.
Closing a card account raises the CUR. Consider this: You have two cards with $1,000 limits each, but your balance is $400 on one card and the second card has a zero balance. With both card accounts active the CUR is 20%. But if you close the card with no balance – perhaps it has a higher interest rate than you’d like – the CUR jumps to 40%, which will affect your business credit score and may also lower your personal score if it’s reported there. Carefully weigh your options before closing a card account, especially if you will need money in the near term and have no other access to funding.
Check your business credit report regularly.
Maintaining a healthy business credit score is important. In addition to wisely using credit and paying bills on time, you should regularly check your credit report to ensure there are no errors or fraud. If there is a problem, it’s typically not very hard to correct. But with multiple business credit scores and reports available, how do you know where to look? Each of the major business credit rating agencies offers simple ways to check your report.
Dun & Bradstreet
If you don't already have Dun & Bradstreet’s D-U-N-S Number (the company's proprietary identification system), you'll need to register for one online. The process can take up to 30 days, and the company will email you once your number has been assigned. The company offers several reporting options for actively monitoring your business’ credit.
You can order a single Equifax business credit report through the company’s website. The report includes a business profile, credit summary, 12- month payment history, your Equifax business credit score, information on any judgments or liens against your business, and bankruptcies reported.
Provide your company name, city, state, and a few other details to access your business credit report at Experian. You’ll have several credit report options to choose from.
A strong business credit score can open doors to opportunities that aren't available to companies with poor credit profiles. Manage your business credit well and you’ll have better access to funding at favorable rates when you need it.
Our banking professionals can assist with your business financial needs. If you’d like to learn more visit your local branch or call 1-888-SYNOVUS (1-888-796-6887).
Important disclosure information
This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Federal Reserve Banks, “2022 Small Business Credit Survey," May 6, 2022
SCORE, “6 Grave Business Mistakes You’re Making with Your Business Credit Card,” May 5, 2022Back
Experian, “How Long Data Stays on a Business Credit Report,” 2023
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