5 Key Factors That Affect Your Business Credit Score
1. Payment History
Payment history is one of the most important factors that affect your business credit score. It refers to how you have paid your bills in the past, including loans, credit cards, and other types of debt. Lenders use this information to determine the likelihood that you will pay back future debts. If you have a history of late or missed payments, it can negatively impact your credit score. On the other hand, if you consistently make on-time payments, it can positively impact your score. To improve your payment history, it is important to stay current on all of your debt obligations and avoid missing or being late with payments.
2. Credit Utilization
Credit utilization refers to the amount of credit that
3. Length of Credit History
The length of your business credit history is another important factor that affects your credit score. Lenders look at how long your business has been established and how consistent you have been in managing your credit accounts. The longer your business has been around, the more likely it is that you have a good payment history and a solid understanding of how to manage credit. This can lead to a higher credit score. However, if your business is relatively new, lenders may be hesitant to extend credit because they don’t have enough information about your ability to repay. To improve your credit score in this area, focus on building a strong payment history and demonstrating responsible credit management.
4. Types of Credit Used
When it comes to business credit, one of the most important factors that lenders consider is the types of credit used by the business. This includes both revolving credit and installment credit. Revolving credit allows a business to borrow money up to a certain limit and pay it back over time, while installment credit involves borrowing a fixed amount of money with a set repayment schedule. Both types of credit can have a significant impact on a business’s credit score, so it’s important to understand how they work and how to use them effectively.
5. New Credit Inquiries
New credit inquiries can have a significant impact on your business credit score. When lenders or creditors check your credit report to review your application for credit, it results in a hard inquiry. Hard inquiries can lower your credit score by a few points, but they’re not as detrimental as late payments or high credit utilization rates. However, multiple hard inquiries within a short period can signal to lenders that you may be struggling financially and increase the likelihood of denying your credit application. To maintain a good business credit score, it’s best to limit new credit inquiries and only apply for credit when necessary.