How to Maintain Your Business Credit Score During the COVID-19 Crisis

How to Maintain Your Business Credit Score During the COVID-19 Crisis article image.

As business owners struggle to stay afloat during the COVID-19 (coronavirus) crisis, they also need to keep an eye on their credit score. While a credit score may seem like a small consideration in the midst of an economic emergency, it could be critical to business owners who need to borrow money, ask vendors for credit or take other actions to shore up their businesses down the line. Here's why your business credit score is so important and how to keep it in good shape despite COVID-19.

Why Is Your Business Credit Score Important?

Just as your personal credit score affects whether you can get approved for loans, credit cards and other forms of personal credit, your business credit score affects your ability to obtain credit for your business. For example, your business credit score may impact whether you can get a business loan, credit card or line of credit; how much credit you can get; and what your terms will be.

In addition to lenders, your suppliers, vendors, landlord, insurers and others may consider your business credit score when deciding whether to do business with you. A poor business credit score can limit your opportunities. For example, a supplier who decides you aren't creditworthy may require cash on delivery rather than extending credit—or may opt not to do business with you at all.

How to Check Your Business Credit Score

There are three major business credit bureaus: Experian, Dun & Bradstreet and Equifax. You can check your business credit report with each of the three business credit bureaus. Although there is generally a fee, it's often worth the cost to know this key data about your business.

Credit bureaus gather data on your business from a variety of sources, including:

  • Lenders and credit card companies
  • Vendors, suppliers and other companies you do business with
  • Legal filings and information from courts and public records
  • Independent sources, such as collection agencies

Each of the business credit bureaus has its own credit scoring methods. In general, however, business credit scores range from 1 to 100, with higher scores indicating better credit. Experian assesses your business credit score using the following factors:

  • Credit: Number of trade experiences, balances outstanding, payment habits, credit utilization and trends over time
  • Public records: Recency, frequency and dollar amounts associated with liens, judgments or bankruptcies
  • Demographic information: Years in business, Standard Industrial Classification (SIC) code and business size

How Is Your Personal Credit Score Related to Your Business Credit Score?

Your personal credit score and your business credit score are two separate scores. However, lenders and others may consider both scores, especially if you're a sole proprietorship or if your business is relatively new and doesn't have a substantial credit history of its own.

In addition, some business credit cards require a personal guarantee and report card activity to your personal credit report. This can affect your personal credit score negatively or positively, depending on how well you manage business credit. The same is true for any business loans that consider your personal credit history for approval.

Ideally, you should maintain a clear separation between your business and personal finances. This will firmly establish your company as a business rather than a hobby and increase its credibility in the eyes of lenders, suppliers and the IRS.

Having credit issued to your business, and not linked to you personally, can also protect your personal credit history in the event your business faces financial difficulty.

How Can Your Business Credit Score Help You During an Economic Crisis (and After)?

During an economic crisis, banks and other lenders often tighten their criteria for loans and other financing. Having a strong business credit score can help your business get approved for credit and obtain more favorable terms. A good business credit score also shows suppliers, partners and landlords that you're creditworthy, which may make them more willing to negotiate with you during a crisis. For example, a supplier who knows you are creditworthy might let you extend payment to net 60 or even net 90 rather than net 30.

Access to credit during a downturn can enable your business to take advantage of opportunities that other, financially strapped companies are forced to pass up. When the economic crisis passes, your business will be better positioned to benefit from pent-up customer demand.

What to Do to Keep Your Business Credit Score From Plunging

To maintain a strong business credit score during a downturn, follow these steps.

  • Check your business credit report to make sure it's complete and accurate. If you find errors or omissions, contact the credit reporting agency to correct the problems.
  • Make sure your creditors, suppliers and partners report your payments to the three major business credit bureaus.
  • Be diligent about paying your bills on time. If you think you will have trouble making a payment, talk to your creditor well in advance. Many may be willing to work with you.
  • If you can't pay the full amount due on a business credit card, at least make the minimum payment on time. Set up automatic payments to ensure you don't miss a due date.

How to Maintain a Good Business Credit Score Going Forward

Going forward, how can you maintain a good business credit score? As the economy improves, getting a small business loan and paying it back or asking more suppliers for trade credit and paying on time can help to boost your credit score. However, the most important factor in a good business credit score is keeping up the good credit habits discussed above.

Business Credit AdvantageSM, an Experian service that monitors your business credit daily, can help you keep an eye on your business credit score. The service sends you alerts of any changes to your credit score and helps protect you from fraud. Your business credit score is a valuable asset to your business; treat it like one, and you'll reap the benefits.