Credit Score rating based on debt reports showing creditworthiness or risk of individuals for student loan, mortgage and payment cards, concept with business person touching scorecard on screen
“You cannot escape the responsibility of tomorrow by evading it today.” (Abraham Lincoln)
A good business credit score is a critical tool in business success as it helps your business unlock, establish and maintain relationships with lenders, suppliers and vendors. It reveals whether an organisation should lend your business money, give it credit or enter into a business relationship.
Building good business credit is, therefore, a vital aspect of running any enterprise and the sooner you embark upon developing a good credit reputation, the better. Business credit allows access to the funding you may need to expand, or get through a tough time, and can even give you better terms with suppliers and other vendors. Perhaps most importantly though, by establishing a good business credit score, you can take an important first step toward creating a dividing line between your business and personal finances, even if you’re running a sole proprietorship or partnership.
So just how do you build this credit score and just what do you need to do to ensure you have the best score possible when the time comes to use it?
Your business’s credit is a score that measures your history of borrowing and making repayments. In South Africa, Experian, Compuscan, TransUnion and XDS compile commercial credit reports and generate business credit scores using the information given to them by financial institutions such as your bank as well as any defaults that may have been recorded against you by those who may have loaned your business money or advanced it credit facilities which the business has failed to repay on time or at all.
Putting together this information will give any potential vendors and loan companies a clear picture as to just how reliable your business is when it comes time to pay back any loans or accounts.
In South Africa, scores can range from 0 to 100 for some bureaus and 300 to 850 for others. The higher the score on the scale the safer it is to loan money to the business. For instance, any score lower than 527 on the latter scale is considered high risk, while scores above 750 are considered low risk.
Any business that records a high-risk level will therefore find it difficult to secure loans or indeed potentially even rent office space.
There are four different criteria that the bureaus look at to calculate your score.
As these reports are generated based on past behaviours, new companies may find it extremely difficult to secure loans. Without the history of past behaviour for a potential loan company to examine, your business’s risk would likely be considered fairly high.
So just how do you go about building your credit score? And how do you avoid falling foul of the system?
The National Credit Act states that every business is entitled to access their credit reports once a year, totally free of charge from each credit bureau. Keeping track of your credit score will allow you to see whether your business is improving or falling behind on its goals and give you a clear picture of just how others perceive you. It will also allow you to see if the information there is correct – incorrect judgments can be included on these bureaus, and checking the reports helps you correct any that may be hurting your company’s credit score.
Head to these links to get your credit score report directly from each bureau:
In conclusion, a credit score is about your relationships with those with whom you transact. If you make payments timeously, use the credit that is available to you, and keep an eye on your credit score for any inaccuracies, you should be able to build a solid credit score in about two years.
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.
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