I’m sure you’re familiar with the term creditworthy but what exactly does it mean from a business perspective?
Which credit ratings determine if a business is considered creditworthy?
While the majority of people associate the term ‘creditworthy’ with personal credit scores, when it comes to business, creditworthiness takes on a whole new meaning.
In this post, we’ll cover the three main types of ratings used for assessing your company’s overall creditworthiness which are: personal credit ratings, business credit ratings and bank ratings. Now don’t be discouraged if one of your ratings are not yet established or may have issues.
There are wide varieties of funding programs that base their credit decisions on one or a combination of the ratings listed below. There’s even funding programs such as revenue based financing that focus mainly on bank ratings (deposit history) not personal credit ratings.
My point is, each of these ratings play a key role depending on the type of funding you want. For example, personal credit ratings play a factor when applying for unsecured lines of credit that only report to your business credit reports.
Let’s break down each of these ratings:
Personal Credit Ratings – from a lender’s perspective personal credit ratings (FICO® Scores) show how well you manage your personal financial obligations. Funding programs such as high limit business credit cards, business loans, and equipment financing use this rating as part of the qualification process.
If you have damaged credit, start a personal credit repair program as soon as possible. You can also use a credit partner to secure the funding you need as an immediate solution.
Business Credit Ratings – your company’s credit ratings (Paydex®, Intelliscore Plus℠, Equifax Credit Risk Score™, etc.) is an extensive and comprehensive report that shows how your company handles its financial obligations. It also provides lenders details on your company’s business operations, its officers, financials, industry classification, and payment history.
If your company is not listed and does not have a business credit rating with all three of these agencies you should start business credit building as soon as possible. Doing so will enable your business to establish its own credit identity separate from you as an individual.
Bank Ratings – bank ratings are based upon how well your company manages its business bank accounts. Everything from deposit history, average daily balance, length of bank account history, to NSF history all plays a major role. It’s crucial to maintain regular deposits and avoid NSF’s by adding overdraft protection.
All three ratings can provide your business with tremendous financing opportunities if built and managed properly. Having a creditworthy business across all rating scales gives you leverage far greater than any single credit rating can provide alone.
Looking to build your business credit ratings? Become a member of my Business Credit Insiders Circle and gain access to a proven step-by-step business credit building system. A system that provides you access to vendor lines of credit, fleet cards, business credit cards with and without a PG, funding sources and lenders that report to all the major business credit bureaus. Submit your name and email below for details and receive a free business credit building audio seminar ($597 value) =>
To Your Success In Business and in Life!
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About the author
Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in ‘Fox Small Business’,’American Express Small Business’, ‘Business Week’, ‘The Washington Post’, ‘The New York Times’, ‘The San Francisco Tribune’,‘Alltop’, and ‘Entrepreneur Connect’.