Your business credit score is just as important as your credit score. When we hear about credit reports we seldom think about households only.
We usually don’t see reasons why we should care about our business credit score. Whether you run a small business or a start-up company, you can assess your credit situation to know which credit opportunities are available to you.
I always advise new business owners to regularly check their credit reports, this ensures that all credit information is up to date.
What is a business credit report?
Your business credit report is a comprehensive representation and numerical summary of your business creditworthiness and current financial standing.
It highlights your repayment capability, loan history, and account status. Lenders assess your creditworthiness to determine loan risk.
What are the Credit Score Ranges?
Different countries and business locations may have different business credit score models and slight variations in how they compute credit scores, but the general ranges are:
- Excellent: 750 and above
- Good: 700 – 749
- Fair: 650 – 699
- Poor: Below 650
How to Check Your Business Credit Score for Free
To check your business credit score, follow these steps:
- Choose a Credit Reporting Agency
- Register for an Account
- Provide Business Information
- Obtain Your Credit Report
- Review Your Report
- Monitor Your Credit Regularly
How to Calculate Your Credit Score in Nigeria
It is typically calculated based on the following factors:
- Payment History (35%): This indicates whether past bills have been paid on time, showing reliability.
- Credit Utilization (30%): Your Credit Utilization is the ratio of credit used to available credit; lower utilization can positively impact the score.
- Length of Credit History (15%): Considers the age of credit accounts; longer histories can enhance the score.
- Types of Credit (10%): Includes different types of credit accounts (e.g., credit cards, loans); a variety can be beneficial.
- New Credit Inquiries (10%): Refers to recent requests for credit, with too many inquiries potentially lowering the score.
Benefits of Maintaining a Strong Credit Report and Scores
Here are the key benefits of maintaining a strong credit report for your business:
- Reflects Integrity: When you uphold integrity by paying past loans at the agreed-upon terms, new loan lenders have no fear when considering giving you loans.
- Secure Collateral-Free Loan: When your credit report reflects a positive credit standing, you have access to collateral-free loans from lenders. Hence, you pose as a risk-free entity to them. This also builds trust and offers you flexible repayment terms.
- Ease of Access: Compared to the frustrating effort of convincing lenders with a poor credit report, you gain easy access to loans with a good credit report.
- Business sustainability: A good business credit report and score are essential for getting the money you need to successfully run and grow your business.
Frequently Asked Questions
Does a good Credit Score affect Business Purchasing Power in Nigeria?
Yes, a good credit report allows you to purchase valuable items like houses, cars, and business equipment without paying cash or going through the turmoil of saving.
Why is my credit score and report important to Banks and Financial Institutions?
Your credit report and score are important because it reflects the likelihood that you will be able to repay the money you borrowed.
Does my Credit score affect my loan negotiation?
Yes, a positive credit report allows you to negotiate reasonable interest rates when taking up loans.
Will my new loan lender review my past loans?
Lenders can see your creditworthiness by reviewing your credit report, this ensures that they give you loans hassle-free.
