What is Business Credit Score And Why It Is Important For Your Business

What is a Business Credit Score?

A business credit score is a figure that indicates how likely it is that your company will be issued funding. In addition, the report presents a clear overview of a company's payment patterns and financial situation. Notably, a corporate or business credit report can be purchased by anybody even though its fundamental function remains intact in contrast to a consumer credit report, which is only made available to its owner or an outside party with their approval.

Apart from understanding business credit score meaning, you also need to understand how to read a Singapore credit score for businesses. Personal credit scores lie between 300 to 850, with most lenders demanding at least 600 for a personal loan. Business credit scores lie between 0 to 100, and most small business lenders need a minimum score of 75 to obtain credit at affordable rates. When issuing lines of credit or extended payment periods, the Small Business Administration (SBA), banks, suppliers, and other business lenders significantly rely on business credit scores and FICO scores.

Business Credit Score vs Personal Credit Score

In a single number, your personal credit score encapsulates your dependability as a borrower. However, did you know that if you own a business, you have two credit scores? Therefore, your personal and company credit score reflects your personal and business borrowing histories respectively.

You can assess and compare your individual and company-wide financial responsibility using your individual personal and business credit scores.

Your credit ratings are determined by the same credit reports and many elements. However, they vary in a few crucial areas, which may decide your eligible credit types.

Access

You can access your personal credit score for free from various sources. The most popular source is the Credit Bureau of Singapore. However, there are just a few places where you can view your company credit score in Singapore. In addition, your score will be made available for a fee from significant business credit agencies. We will discuss more about where you can access Singapore credit score for your business. 

Rating Agencies

While commercial financing organisations rely on Dun & Bradstreet and Experian, and their unique models, consumer lenders prefer TransUnion and Experian credit scores in Singapore.

Data

While most small business lenders consider your FICO (Fair Issac Corporation) or business credit score, many others do both.

What is the Importance of a Business Credit Score for a Company? 

The importance of a business credit score in Singapore for a company is indispensable; it supports growth and affects a lot of other factors like goodwill and credibility. Few other questions will help understand its importance better.

1. How will business partners use your business credit score in Singapore?

Brand connection typically results through cooperation between businesses. For example, a potential or current partner may obtain your company's credit report to assess the strength and stability of your business. Additionally, the organisation can confirm your company's ability to uphold half of the agreement if the relationship includes financial and contractual commitments. In this case, the requirement for a credit report safeguards the user's interests from contractual default and reputation damage.

2. How will your customers use your business credit score?

Your organisation's credibility will be inversely correlated to how your clients perceive your financial health; the healthier they perceive your business to be, the more credible it will seem. A business credit report will be important in establishing the durability and your organisation’s ability to deliver because the consumer may commit to using your service or purchasing your goods over an extended period.

3. How will your suppliers use your Singapore credit score for your business?

Suppliers will primarily utilise your business credit report to set payment and credit conditions. Therefore, your company's credit rating in Singapore will significantly impact the terms your suppliers are willing to offer and whether or not they will do so when necessary. A high score will also give you significant negotiating power and speed up the onboarding process.

4. How will banks and financial institutions use your business credit score?

Most banks and financial institutions will look at your business credit report when you request a loan to determine your ability to pay back the debt. In addition, your credit score will be considered when determining the loan limit and interest rates offered to your company. Businesses with better credit scores will be eligible for loans with more significant loan limits and reduced interest rates. In other words, the success, terms, and speed of your loan acceptance will depend on your overall strong credit report.

Challenges In Maintaining A Good Business Credit Score

Maintaining a good credit score in Singapore is challenging and time-intensive. A personal or business credit history typically takes at least a year or two to build or enhance. External rating agencies determine your credit ratings, so while you can attempt to influence and improve them, you cannot directly alter them. Maintaining internal records and tracking small business credit scores might take a lot of work.

What Factors Affect a Business Credit Score?

Assets

Your credit score in Singapore is likely to improve if you have assets, such as property investment.

Unpaid debts

Your credit score will rise if you manage your credit well and make on-time payments. This will increase the likelihood that you will be granted a business loan if you request one.

Long life

Your score will increase if you've been in business for long periods.

Credit history, personal and corporate loan history

When did you first acquire personal and business credit? What loans did you previously have, how much were they worth, and how quickly did you pay them off? It can affect your score and make you more accessible to lenders if you have some experience indicating your tendency to repay loans in the future.

Income

Your score will go up if your business is making profits.

Public Records

IRAS filings and other information, such as liens and judgments against you.

Business Risk

Due to their historically higher risk than others, some industries, like bars and restaurants, have separate credit ratings.

How Are Business Credit Reports Used?

Credit score reports are helpful in various ways, like applying for loans, dealing with a new client/customer, etc. In addition, a business credit score helps you maintain a positive image and stronghold in the market. 

What is a Good Credit Score in Singapore?

Most small company lenders want a business credit score above 75, but regional lenders may consider lower ratings for startups or small firms. However, there are alternative options if you accept higher interest rates and stricter payment terms.

Conducting research helps small-scale business lenders decide whether to give money more easily. A low corporate credit score indicates high risk. You do not want your company to be in danger regarding credit reporting.

How To Deal With A Poor Business Credit Score?

There are two sides to credit scores. You can use them to safeguard your company from bad debts or take steps to reduce risk by checking the credit score of both new and existing clients.

There are a few ways through which you can deal with a poor credit score:

Limit your dependency on delayed payment

Customers who routinely pay late will affect your cash flow. They could make it harder for you to make on-time payments on your debts, lowering your credit score. Make sure you aren't reliant on wait-time-inducing companies. Attempt to phase out your company's late-paying customers gradually.

For contracts with riskier organisations, impose careful invoice payment terms

You can work with companies with poor credit ratings but you might want to alter your terms of engagement. For instance, you could:

• Reduce the amount of credit you give them by setting shorter due dates.
• Request a down payment in advance.
• When invoices are overdue for payment, levy interest or a processing fee for late payments.

Analyse your cash flow

Your cash flow is an important determinant of your credit score. Running out of money will cause you to miss payment deadlines and ruin your credit score.

If you ensure you are getting paid on time, you will relieve many burdens yourself. Consider your bill payment terms carefully, and consider how online accounting can assist you in managing your accounts receivable. Additionally, make an effort to plan your financial outlay. Think about establishing guidelines for how low you can accept your balance. An accountant can advise you on what is suitable for your business.

How To Improve Your Business Credit Score in Singapore?

The ideal time to apply for a business loan is really when you don't need one, which is an ironic aspect of business financing to be aware of. When you apply for a business loan well in advance, you ensure that you are covered in case of cash flow problems, for working capital needs and capitalising on any investment opportunities that come your way. 

Knowing the value of building a solid business credit profile early on will aid your current and future business objectives. In addition, a strong company credit history always encourages lenders to grant you a business loan and supports your ambitions for business growth. Building business credit takes time and effort and does not happen immediately. 

1. Every Bill Must Be Paid On Time

The best thing you can do is pay all your bills on time, as this will help you establish a good payment history by demonstrating your ability to handle your finances. Then, as a result of your responsible behaviour and sound business management, you can retain solid business credit.

You should also pay off the entire payment on your personal and business credit cards instead of just the minimum to avoid paying insanely high-interest costs. Use your credit card to make purchases rather than racking up debt.

2. Own a business credit card

Any business may find business credit cards to be a valuable asset. Of course, you may use this card to cover business costs like supplies and equipment, and most cards offer benefits like cash back or travel incentives. A business credit card can also establish a strong business credit history and credit rating if you use it responsibly and consistently and make your payments on time. If you do this, your company may be able to qualify for more and better financing options down the road, should the need arise.

3. Improve your credit file using trade references

A solid business credit score requires good trade references. These demonstrate your reliable payment history with suppliers and vendors. Some may take the initiative to notify the credit reporting agencies of this information, but this is unnecessary. They can also be added independently by you. Numerous factors, such as your number of trade experiences, unpaid balances, payment patterns, and demographics, affect your score. 

4. Examine your credit reports, both personal and business

Checking your personal and business credit scores should be your first step. Visit any website that offers credit reports approved by the government and run by Experian and TransUnion, to get your personal score. 

Always double-check your work for inaccuracies. Check for errors in each section, including the ones containing your personal data, SSN, accounts, and loans. Any inaccurate information should be reported to the firm that provided the account or the credit reporting agency that issued the report.

Next, review your company's credit report. These are available from Dun & Bradstreet and Experian upon request. 

5. Establish credit with suppliers and vendors who file credit reports.

Not every vendor, supplier, company, or entity you work with will submit information to the credit reporting agencies. However, collaborating with those who do can help you establish business credit and raise your business credit score. Ask your vendors and other parties if they disclose your payment activity because solid business credit is built through a history of timely or early payments. As a result, you could be able to borrow more money thanks to your good credit, get better financing terms from lenders, or attract more cooperation from other companies.

6. Strengthen Ties With Several Lenders

Finally, it is essential to remember that by establishing relationships with more than one lender, you will have a more extensive selection when the time comes for you to begin approaching the various banks for a business loan. This is important because banks have different lending requirements and risk preferences that may vary over time. You can even approach many banks simultaneously to raise the required amount if you need a more extensive business loan in the future.

If you want to know about the mistakes you can avoid to ruin your credit score, read this article. 

How To Check Credit Score in Singapore and Get a Credit Report?

You will require a D-U-N-S number and your Employer Identification Number to check business credit score from D&B Paydex.

Your lender will determine your FICO SBSS score using a variety of factors, including the age and size of your corporate firm and scores from other credit reporting agencies. Working with an approved lender will help you determine this score.

You must check with the corporate credit reporting agencies to see your credit scores for your business. Four major agencies provide company credit scores in Singapore including ratings and reports. Dun & Bradstreet's Credit Score for Businesses primarily works in a credit check. Additionally, there are scores from Equifax and Experian for business credit and payments. Banks and other lenders frequently use these while evaluating loan application documents.

Lastly, there is the FICO LiquidCredit Small Business Scoring Service. It creates a credit score using Dun & Bradstreet and Experian data. 

Conclusion

Credit score calculations include intricate and complex calculations. Nevertheless, the fundamentals of safeguarding your company's credit score are not. Ensuring your company maintains a good cash reserve, paying your suppliers on schedule, and getting paid on time is important. Accounts payable procedures and effective invoicing systems are essential to all of this.

In this article, we have covered details on Singapore credit score meaning, how to check business credit score in Singapore, how to improve credit score in Singapore and what is a good credit score in Singapore. You can use these guidelines to check your business credit score and improve your business credit score in Singapore.