Most of us are familiar with our personal credit score, often referred to as a FICO score. It’s the go-to number banks use to gauge your personal creditworthiness. Keeping your FICO score strong — by paying bills on time, keeping debt levels low, and managing a healthy mix of credit types — is essential for securing better rates and terms on loans.
But when it comes to your business credit, things work a little differently. There isn’t just one universal score that all banks rely on. Instead, banks take a more comprehensive look at the overall health and history of your business.
Here are a few key things that bankers evaluate:
- Business credit reports: Services like Dun & Bradstreet, Experian Business, and Equifax Business provide credit profiles that lenders use to assess your payment history, credit lines, and business relationships.
- Accounts payable history: Consistent, timely payments to your vendors and suppliers demonstrate reliability and reduce your risk profile.
- Public records: Banks will check court filings for any past bankruptcies, liens, or disputes. A clean legal record builds trust.
- References: Some lenders will go a step further and request references from your vendors, customers, or other financial institutions.
- Leverage: Banks want to see a healthy balance between debt and equity. A good rule of thumb is a 3:1 ratio — $3 in liabilities/debt for every $1 of equity retained in the business. If your business is over-leveraged, securing new credit can be tough.
The best way to build business credit is to be proactive. Here are five tips for building stronger business credit:
- Separate your business and personal finances as early as possible. Open a business checking account and get a business credit card to begin establishing credit in your company’s name.
- Pay every bill on time. Even one late payment can impact your business’s credit history.
- Maintain strong relationships with vendors and suppliers, and don’t be afraid to ask them to report your positive payment history to business credit bureaus.
- Keep your financial records clean and organized. Having accurate financial statements on hand builds lender confidence.
- Invest in a good CPA to handle your bookkeeping and tax return preparations.
Remember, business credit isn’t built overnight. It takes consistency, good financial habits, and a reputation for reliability. But when the time comes to seek funding — whether to purchase equipment, expand your staff, or invest in a new location — having strong business credit can make all the difference.
At Midwest BankCentre, we’re proud to partner with small businesses across the Midwest to help them grow and thrive. If you need help building credit or preparing for financing, call us at 314-631-5500 or visit MidwestBankCentre.com.
Originally published in The St. Louis American’s August publication by Lisa Morgan, Sr. Vice President Commercial Lender – Community & Economic Development at Midwest BankCentre