As a small business owner, you should have two different types of credit scores. There is your personal credit score and then there is your business credit score. The two are completely separate and should remain that way. While a personal credit score is a reflection of your creditworthiness, your business credit score is a reflection of the financial health of your business. Since the two are separate, it’s possible for you to have a great personal credit score but a bad business credit score and vice versa.
If you are ever considering applying for a business loan, first look into your business credit score to make sure you’re in good financial standing. The higher your credit score, the more likely you will be able to secure a loan. To do this, you need to contact a credit bureau to produce a business credit report for you. When they produce a report, they consider a number of factors such as your business’ payment history, credit utilization, length of credit history, company information and risk factors.
There are two major credit bureaus in Canada: Equifax and TransUnion. One important thing to keep in mind is that each credit agency uses different algorithms to determine your business’ credit scores. That’s why it’s important to get your business report from both credit bureaus.
Now, before asking Equifax to produce a report for you and what information appears on your business report.
Important Information on you Equifax Business Credit Report
This includes information about your business, such as name, phone number, address, and website. You might also find other information such as sales volume, employee size, and incorporation number.
Equifax analyzes your business’ payment history and any outstanding balances your business might have with other creditors and vendors. Some of these include traces of late payments or any other delinquent transactions within the past 2 years. In order to increase your chances of getting a good credit score, it’s wise to pay your vendors and creditors consistently, on time, and in full. Late payments that are more than 30 days late will have a negative impact on your credit scores.
Equifax will look into your business’ credit history. This includes the number of credit utilization and the length of time of your business’ oldest financial account was opened. If you have a long credit history, it means that your business is lower risk. This will help improve your credit score.
When it comes to credit utilization, you should aim to keep it low. For instance, if you have a $100,000 line of credit, you should only use about 30-40% at a time. If you think you’ll be using more than that, consider getting an additional loan or line of credit to lower your credit utilization.
Like TransUnion, Equifax will look into any negative public records associated with your business. This includes liens, judgments, and bankruptcies. If you do have any of these public records, it’s better if they are not too recent or that the amount for each is on the lower end.
Equifax Business Credit Scores
Equifax reports three different business credit scores. They are Commercial Delinquency Score, Business Failure Risk Score and Payment Index. Let’s take a closer look at each one:
Commercial Delinquency Score (CDS)
This score ranges from 101 to 662. It predicts the possibility of severe delinquency or bankruptcy on any of your accounts within 12 months. The higher your score is, the lower the possibility of delinquency.
Business Failure Risk Score (BFRS)
Also known as BFRS, it predicts the probability of your business not doing business within the next 12 months. The score range is from 1001 to 1722. The higher your score is, the lower the possibility of failure.
The PI is a measurement of your business’ payment habits and is calculated on the overall owing amounts in the 90 days preceding the day the report was requested. The Payment Index range is from 0 to 99. The lower (or closer to 0) your score, the better it is. In other words, a zero PI score means all reporting creditors are fully paid within terms.
Ultimately, Equifax is one of the most popular and best credit reporting bureaus in Canada for small businesses. It provides you with a strong score and opens up financial opportunities for your business. The good news is that Lending Loop is partnered with Equifax, so you don’t need to pay a fortune to receive your credit score and report. You can simply sign up with Loop and keep tabs on your business (as well as personal) financial health and continue working towards growing your business.