Why You Need Business Credit Ratings and How to Manage Your Business Credit Score

In today’s global network of borrowers and lenders, there are two types of companies: those who are getting credit from lenders and those who are giving credit to new accounts. Millions of businesses operate throughout the world and loan out billions of dollars in cash, goods or services on credit. In order for all this to work smoothly, company need to carefully evaluate the creditworthiness of their partners. It is very difficult to determine the credit of all trading partners in today’s global economy, but there is a helpful solution: business credit ratings.

Vital Information

Today’s marketplace moves extremely fast. It is important that businesses learn to make fast decisions in order to avoid being left behind. Competitors are always working and waiting a fraction of a second too long can have disastrous consequences.

In order to make fast and sound business decisions, it is important to get data that has been filtered and packaged into helpful information. The hardest part is in making decisions when a company is located in a different country and speaking a different language. It is important for a manager to have vital financial and management information in order to gain important information about prospective partners.

There is a way that a business or risk management officer can get vital professional and objective information quickly to determine the risk of prospective partners. This would be through business credit ratings and full credit reports to make critical and sound business decisions.

The Business Credit Rating

The business credit report has data that has only been crosschecked and filtered to maintain accuracy. After the data has been broken down into useful information it is provided into critical areas that provide vital financial information, upper management names, major shareholders, loan payoff history and other valuable information. This detail can only be obtained when getting a comprehensive credit review.

The business credit rating itself is a single number that comes from all the assembled elements. The credit rating can allow you to quickly know where a company ranks for absolute scale and compared to other businesses. The scale is different for each credit-reporting agency. For some companies it can be one a scale of one to 100 while other companies use alphabet grades such as A, B, C and D. Sometimes a five is a high number and other times it is the lowest. The point is to get a company with a high credit rating so that you can be sure you are getting a business with good credit and finances.

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What About Your Rating?

Just as you want to check on the rating of a business you are going to be working with, your company also needs a good business credit rating in order to apply for a loan or credit. By maintaining a good credit rating, you can prove to your creditors that you are a good risk. There are three ways that you can work to improve your credit rating:

Maintaining a strong fiscal standing by paying all debts on time
Make sure favorable data is reported and that a credit reporting agency maintains the changes
Make sure your company’s credit reports are up-to-date and have accurate information

When you take the time to examine your credit report regularly both you and the credit-reporting agency can benefit. It is impossible to get rid of negative information on your report, but you can get rid of information that is proven incorrect. When you check for incorrect information, you can improve your rating, but also make sure that the industry remains ethical and accurate.

If you run a small business there are 1000 things to take care of everyday. While you focus on generating income, keeping expenses down, managing your employees, and getting that marketing plan in shape, thinking about your business credit rating may get pushed to the back burner.

Ignoring your business’ credit score could turn out to be a fatal mistake. You work hard to maintain a good image to your customers. You should be just as concerned about how your credit report looks to potential lenders and business partners because that is what they are going to look at first. The public does not have access to your personal credit score unless you give somebody permission to see it by applying for a loan or other form of credit. Your business credit score is a different story, however. There may be a potential business partner out there right now, or even a potential buyer for your business, looking at your business credit report and score and making a decision about what they will do next based on what they see.

Also Read: 7 Mistakes to Avoid When Seeking Funds for Your Business

You can learn how to manage your commercial credit and integrate that activity into your daily routine. Here are some tips to get you started.

You must know what is in your business credit report at all times. You must also understand how to read it. Your report will be used by others to make important decisions about your company, like how much money a lender would loan you, how much credit suppliers will extend to you and what interest rates they may charge.
Make sure that the business information in your credit report is accurate and up-to-date. Inaccurate and outdated information may create exactly the wrong impression about your business. And it does not have to.
Sign up for a monitoring program that alerts you when a change has been made to your credit report. Unexpected changes could mean a fraudulent use of your business credit information. Alerts also include notifications on inquiries gained and new trade lines. You can also protect your business from nonpaying customers, partners and suppliers by checking their business credit report before you do business with them.
Separate your personal and business credit lines. When you started out in business personal guarantees and using your personal credit were unavoidable but as you grow larger you can establish purely business credit lines. If you are big enough to do that now then that should be priority number one. This separation can work both ways. If the business runs into trouble you do not want it adversely affecting your personal credit score, and vice versa, you do not want personal credit issues affecting the ability of your business to buy inventory and supplies on good credit terms.
Your business credit report is part of the image and reputation of your business. You will help your business grow by taking an active role in managing your credit report and score. Ask your lenders, suppliers, and creditors if they are reporting your good payment history to the credit bureaus. You should also get points for doing things right.

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