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Why you should know your business credit rating

Why you should know your business credit rating

If your small business is like many that responded to a 2015 Small Business Credit Survey by the Federal Reserve Bank, you may need a business loan or line of credit to expand your business or meet operating expenses. Almost half (47 percent) of the businesses surveyed had applied for credit in the past 12 months. Since credit is such a common business need, it pays to know how to maximize your chances of getting the money you need at a price you can afford. Your business credit rating can be an important factor.

But you may not know your business's credit rating — or even whether it has one. Credit rating companies such as Dun & Bradstreet, Experian and Equifax may start developing a company's credit report at the time the business incorporates by tapping public data and other financial information without the business owner even knowing about it.

The importance of good credit

In many respects, a business credit rating is similar to a personal credit rating — it considers payment history, the amount of credit available and the age of your credit profile. There are some differences, however. Many different business credit reporting agencies exist, offering a variety of reports on different aspects of credit, such as your on-time payment history, the likelihood of your business becoming severely delinquent on payments and the risk of your business closing. Your industry, the size of your business and the amount of time you've been in business may affect your score. And you may need to apply to a credit bureau to have your business credit activity tracked.

Unfortunately, the information contained in business credit reports isn't always accurate or complete. However, if you check your report and discover inaccurate or absent information, you can appeal directly to the credit bureau to make changes, just as you can with a personal credit report.

Develop a good business credit rating

A good business credit rating may:

  • Make getting approved for a business loan, business line of credit or credit card easier
  • Qualify you for a lower interest rate
  • Allow you to borrow more money
  • Help decrease ongoing expenses, such as business insurance premiums

Use this checklist to be sure your company gets the credit it deserves:

  • Be sure that your company's documents, financials, filings and registrations are complete, accurate and up to date in your credit profile.
  • Pay invoices in a timely manner, and keep your credit usage consistent. Lenders want to see a positive payment history with regular purchases and timely payments.
  • Ask for an increased credit limit from suppliers or creditors with whom you have a positive payment track record. This can help showcase your ability to handle large credit obligations.
  • Keep credit utilization ratios low. It indicates to creditors that your business can handle its credit obligations.
  • Use a variety of types of credit. Demonstrate that your business can manage various types of credit responsibly by having, for instance, short-term financing, revolving accounts and installment loans.

Expand your business opportunities with a business loan or line of credit from California Bank & Trust. Our lending professionals right here in California will help you select the right program.

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The information contained herein may not represent the views and opinions of California Bank & Trust, a division of ZB, N.A. or its affiliates. It is presented for general informational purposes only and does not constitute tax, legal or business advice.
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