A company's credit rating can be an asset worth cultivating

By ,
Ask a Lender
September 21, 2017


Key Points

About business credit ratings

  • A business can obtain a credit rating through one of the three major rating agencies that sell credit reports.
  • Businesses are scored on a scale of 0 to 100, with 75 or more representing good or excellent credit.
  • To establish separate business credit score, a company needs to legally establish the business and obtain a federal tax ID number.
  • One way for a new business to build credit is to establish multiple trade lines with third-party vendors and maintain a good payment history.

Just like a person, a company can obtain a credit score.

Businesses with high credit scores will tend to get lower interest rates on loans and garner a good reputation with the vendors and banks that check those scores. A low score could make it much more expensive and difficult to obtain trade lines with vendors, financing for revolving lines of credit for working capital or large, one-time loans to make property improvements.  

The rating agencies score and evaluate businesses differently than personal credit scores. Three credit-rating agencies — Dun & Bradstreet, Equifax and Experian — primarily sell credit reports. Each of the companies uses different scoring methodology, although all the agencies tend to look closely at a company’s payment history with vendors. Unlike the point scale of 300 to 850 used to evaluate individuals, companies are evaluated on a scale of 0 to 100, and 75 or more is considered good to excellent credit.

Establishing business credit

A business will not automatically be scored, however. To establish independent credit for your business, you’ll need to legally establish the business and obtain a federal tax ID number from the Internal Revenue Service, and establish dedicated checking and savings accounts for the business with a bank. Typically, you will need a separate mailing address, phone number and name for your business.

According to credit counselors, it is a good idea to establish a separate identity and credit for your business. For one thing, a business potentially has a much greater credit capacity than an individual, which will increase its borrowing power.

Also, if you establish a separate business credit, you won’t put your personal credit at risk if your business takes a hit and you miss payments. The reverse also is true in that if you suffer a personal loss and your personal credit rating suffers, it won’t affect the business rating.

Building good credit

For a new business, establishing business credit can sometimes be challenging. Owners will have an easier time in establishing credit lines with vendors and banks if they have a strong personal credit history, according to credit counselors.

A new business often will build its credit standing by establishing multiple trade lines with their suppliers of goods and services. It is important to pay these third-party companies on time, and also ask your vendors to report to the rating agencies. Businesses also can boost their credit by taking out loans and repaying them.

As with personal credit, a business should attempt to keep its record as spotless as possible, avoiding court-ordered judgments, liens and bankruptcy. Black marks on a credit report can haunt a company for years.

The bottom line is that a good credit score should be considered an asset for a business, while bad credit is a liability. Like an asset, your company’s good credit standing should be cultivated and treated with care.

Compare Commercial Real Estate Lenders