5 Compelling Reasons Why You Need to Check Your Credit Report

Ezra Cabrera

Updated: December 3, 2019

Did you know that your business credit score plays a huge role in the growth of your business? Having a great credit ranking is also vital if you’re planning to apply for small business loans in the future. But surprisingly, Nav discovered that almost half of the small business owners in the U.S. didn’t know that a business credit score exists. On top of that, 72% were not sure where or how they can find information about their score, and how to interpret it, so the first thing we must determine is:

Related: How to Review Your Business Credit Report

What is a Business Credit Score?

Having a business credit score is similar to having a personal credit score. Business credit scores are a record of a company’s financial responsibility. Potential investors, suppliers, and financial organizations use your credit score to determine whether your business is a good candidate to do business with.

Business credit scores are calculated by different agencies; each of these agencies has different calculation methods. But the rule of thumb is that the higher your score is, the better it is. Different factors affect your business credit score, such as:

  • Liens or bankruptcies
  • Outstanding balances
  • Payment habit
  • Demographic information (size of the business, years in business, etc.)

It’s important to know that having good credit is an important part of running a business. Even if you finance your company or invest out of pocket, at some point, it will pay to have a good business credit score.

Below are five reasons why.

Related: 6 Factors that Affect Your Business Credit Score

1. Lower Interest Rates on Small Business Loans

Interest rates are one of the most important factors in a small business loan application. It’s the cost financial institutions charge on top of the loan. Most lenders calculate the interest rate of a loan based on the credit score of the business. In other words, the higher the credit score, the better the chances of qualifying for lower interest rates. For lenders, having a good credit score is an indication that you have no problem repaying your debts on time.

If you’re planning to apply for small business loans, be sure to check your credit score first and make changes if needed. Don’t forget to pay your bills and invoices on time and monitor your credit rating regularly so you can immediately correct any errors that come up.

2. More Favorable Terms from Your Suppliers

A good business credit not only helps you obtain lower interest rates, but it also improves the credit terms provided by your suppliers and vendors. If you need to purchase supplies, you may want to consider buying on credit. Most suppliers extend favorable credit terms to businesses with good credit. If suppliers deem that your business is financially capable of paying back debts, there’s a greater chance they will forgo prepayment and allow you to buy what you need on credit.

3. Higher Loan Limits from Lenders

Financial institutions extend business loans to companies with a strong credit rating. Businesses with great credit scores demonstrate financial responsibility. In other words, the better your credit report, the higher the loan limits you’ll be able to qualify for. With higher loan limits, you will have the chance to secure more working capital to grow your business.

4. Protect Your Personal Assets

By improving your business credit, you’ll be able to separate both personal and business finances. Your company debt will reflect on your business credit report. In this way, your personal finances won’t take the hit if your business finds itself in an unattainable financial position. However, it’s still important you check your personal credit report as well. Aside from your business credit report, most potential lenders will want to review your personal credit score while reviewing your business loan applications.

Related: 6 Ways to Improve Your Business Credit Score

5. Attract Investors to Your Business

Entrepreneurs know that certain risks are involved when starting a business and success is never guaranteed. If your business succeeds, there’s a higher chance that other entrepreneurs will want to invest in your business. However, entrepreneurs won’t be too keen on investing in a business with a low credit rating.

On the other hand, if a business faces financial struggles, the owner may want to sell it to other investors. Potential buyers will not want to buy a business that struggles financially. It is for this reason investors check the business’ credit rating prior to purchasing.

Discover Small Business Loans for Your Company Today!

Your business credit rating plays a huge role in the growth of your company, especially if you want to apply for small business loans. To keep your credit rating in check, make sure to pay your bills on time, separate business and personal finances, and avoid opening new business credit card accounts. In this way, if you apply for small business loans or attract investors in the future, you’ll be able to receive more favorable results.

Ezra Cabrera
Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.

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