Making Sense of Your Business Credit Ratings
Most of the time, business owners are familiar with credit ratings because they know the way their consumer credit rating operates. While there are some similarities between the consumer side and business credit ratings, though, they do operate very differently, and that is where some new entrepreneurs find themselves a little confused. Understanding both the similarities and the differences is key to moving forward successfully and establishing a good rating for your business.
The main difference between the personal and business sides happens to be that while the FICO score dominates as a consumer credit rating index, there are multiple competing bureaus providing business ratings, and they all score companies slightly differently. That makes it necessary to check in with multiple institutions to understand a balanced picture of a company’s credit health. All of the companies use a combination of your company’s size and age along with its actual debt and repayment history, open credit lines, and other financial features.
What this means is that business credit ratings have some features which will generally help them rise as your company grows, but those same features provide a limit to what can be reasonably expected from a small startup company’s credit rating. Until your asset portfolio grows and you establish a company history with a consistent volume of business, good credit habits are the key to raising your rating. Asking your vendors for credit and for credit reporting is a great way to start to establish a record of these habits. Asking utility companies for the same is also a good way to make sure your payment history is complete.
Business credit cards are another accessible way for most new companies. They provide access to credit at reasonable rates, and many are available based on the credit rating of a single owner or partner, where signature credit lines and bank loans require disclosures and approval processes that often make them inaccessible. As your company grows, keeping a consistent cash flow through the business so your operations go smoothly and your volume of business consistently rises is the key to continuing to improve and sustain business credit ratings. Credit cards are a first step toward managing credit in a way that facilitates this.
Understanding how your ratings work is an important step toward controlling them and grooming them for success, both of which are important. Credit ratings are emerging, evolving from tools primarily used by banks for loan determination to key risk assessment tools used by other companies to determine who they will and will not do business with. Building your credit history establishes a narrative that opens new opportunities for any business.