What is the need for business credit score?
Those who are running ancestral business never know how difficult it is today to start any kind of new business. Sometimes it appears to be the most difficult task a person ever faces in his or her life. Life becomes more difficult for an entrepreneur when he starts managing funds for his new venture. Although you may have a good business plan, banks and financial institutes do not give warm welcome to new entrants. However, you should not lose heart as your business credit score helps you at this time.
Percentage-Wise Breakup of Credit Score Factors
What is this business credit score and how to improve it? Your business credit score is a reflection of the fact that how well or badly you have managed your finances previously in your life. The most important factors affecting your business credit score are payment history and the amount of liabilities. Other factors affecting your credit score are length of credit history, type of credits used and new credits. Last two factors account for 10% of your credit score while length of credit history accounts for 15 %. Maximum share goes to payment history as it alone accounts for 35% of your credit score while 30 % goes to the amount owed.
There are several specific things attached with each of these factors determining your credit score. For example, let us take the major factor, amounts owed. It has the following items.
- Amounts owed
- Amounts owing on Accounts
- Amount owing specific types of accounts
- Number of accounts with balances
- Lack of a specific type of balance
- Proportion of credit lines used
- Proportion of installment loan amounts still owing
- The following items make up length of credit history –
- Time since account opened
- Time since account opened by specific type of account
- Time since account activity
How many times somebody enquires about your credit report is also an important indication of your position. Figures indicate that only one enquiry was made in a year regarding 93 % of the total consumers. On which side of the average you stand decides your credit score.
How to improve business credit score
By having a close look at above-mentioned percentage-wise breakdown of factors affecting business credit score, you can easily understand that timely payments are very important for improving your credit score. Setting the monthly installments to the minimum will also give a big boost to your credit score. Try to open minimum possible accounts at a given point of time. Do not forget to collect a copy of your credit report issued by national credit report agencies every year. Go through these reports thoroughly. If you find any error in it, report immediately to the competent authorities and make sure that it is rectified. By applying a little self-discipline and setting priorities of your needs, you can very well manage your financials