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How is your business credit score different from your personal credit score?

June 9, 2016

Article courtesy of Credibly
BY Ben Goldstein

Just as your personal credit score reflects the likelihood that you’ll meet your payment obligations, your business credit score measures the creditworthiness of your business. The higher the score, the more likely you are to be approved when you seek business capital and loans.

Understanding the difference between business credit and personal credit is an important first step to boosting your business credit score. Here are four significant differences that you need to keep in mind.

1. Anyone can view your business credit.
Unlike personal credit where only you have the ability to view your own consumer credit report or provide it to another person to view it, anyone can view your business credit report.

That means a consumer could look at your business credit report, or another business could decide to view it. The fact that your business credit score is publicly available to rivals and potential partners should be enough motivation to keep it well maintained.

Of course, that also means you can view other businesses’ credit scores whenever you want. If you’re thinking about adding a vendor to your supply chain, you’ll probably want to know if that vendor is in good financial health so that they don’t lapse in providing you with the materials you need. Having access to other business credit reports is something you can, and should, take advantage of.

2. The scales are different.
Personal credit scores are not on the same scale as business credit scores. Personal credit is typically expressed in a range from 300 to 850. (Generally, 700-749 is considered “good” credit, and 750 and above is considered “excellent.”)

Business credit is generally on a scale of 1 to 100. The closer you are to 100, the lower risk you are, so you want to be as close to 100 as possible.

3. They have no impact on each other.
Your consumer credit score has no impact on your business credit score, and vice versa. If your business credit score goes up, it doesn’t mean that your consumer score will go up, and if your consumer score goes down, it doesn’t mean that your business score will go down. In reality, the two scores have no interaction with one another. That’s why it’s important to build both separately.

4. Late payments (and early payments) are weighted differently.
With personal credit, late payments generally don’t affect your credit report until you’re 30 days late, and early payments have no effect on your score whatsoever. By contrast, business credit takes “days beyond term” (DBT) into account: the date your invoice was due and the exact number of days that it’s past due.

That makes paying invoices as close as possible to the due date very important when you’re trying to build your business credit. The good news is, you can improve your business credit score by consistently making payments before the due date.

Author Note 6/14/2016:

Business credit reports can be purchased from a credit reporting service like Experian.

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