How Business Credit Ratings Work

Many people have a basic understanding of consumer credit scoring. Business credit ratings, also known as commercial credit scores, are important for business owners to understand. This rating can greatly impact a company and its ability to conduct business in a variety of ways.

Commercial Scores Impact Financial Relationships

A commercial credit score is an indicator of how likely a business is to be delinquent on debts. Credit grantors, lenders, banks, credit card issuers and insurance firms are just some of the financial institutions that will consider a commercial credit score before engaging in a financial transaction with a business. With a low credit rating, businesses may only be able to secure high interest or high risk loans. New businesses without any established credit may also have limited options when developing financial relationships. As credit score improve for a business, their creditworthiness demonstrates to lenders an ability to pay back loans on time. This improves interest rates and lending options.

Business Credit Ratings Impact Business Relationships

The commercial credit rating of an enterprise can also be a factor in business relationships outside lending. Any business interaction that may be a risk to either party will take a credit score into account. Securing properties, purchasing materials or achieving some accreditations all often consider the credit score of a business before choosing to engage in commercial affairs with them. Just as a low credit rating can have a negative impact on a business, a higher credit rating can help businesses. Expansions, purchasing or renting equipment and property, acquiring materials and establishing community relationships are all often easier with a higher commercial credit score.

Improve Credit Scores With Good Habits

As with personal credit cards, the best way to build and maintain a strong credit score is through making prompt payments. Similarly to personal credit ratings, business credit ratings can be negatively impacted by legal trouble, by having invoices sent to collections and by financial troubles like bankruptcy. Reducing debt and continuing to grow revenue, thereby improving the debt to asset ratio of the business, will also help to improve credit scores. These basic credit maintenance habits are helpful for individuals and commercial endeavors.

A commercial credit score measures a company’s creditworthiness. Any business with a credit card, even small businesses, often have business credit scores. The score may help a business secure better terms when taking out a loan or applying for a credit card. Responsible management of business credit ratings can be beneficial for any business.

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