Company Credit Score and Report: All You Need to Know
For multitudes of businesses and enterprises in India’s economic ecosystems, loans and credits are lifelines. And, to avail credit, business entities and proprietorships must demonstrate sound financial standing from banks and non-banking financial institutions.
The financial health of a company is accurately reflected by its credit score. Similar to how an individual’s personal credit score demonstrates their creditworthiness, a company’s credit report serves as evidence of their creditworthiness.
A company credit report, also known as a business credit report, is a quick and easy way to detect identity theft in its early phases. You can prevent unnecessary financial losses caused by identity theft if you comprehend and interpret your credit report. A strong credit report can enhance an organisation’s reputation and provide a competitive advantage in the marketplace, demonstrating its ability to manage financial commitments and maintain healthy business relationships. As a responsible and ambitious business owner, you should know the importance of company credit scores and reports and the need to monitor them regularly.
Credit scores and reports are tools that provide valuable information about your business’s trustworthiness and financial health and can help secure loans, credit, and other financial services.
What is a company credit score?
A company credit score, in India, is a numerical representation of a company’s creditworthiness, ranging from 300 to 900. The score is typically generated by credit bureaus based on the information provided by lenders and creditors. A credit score is calculated based on various financial and credit-related data, such as the company’s payment history, credit utilisation, financial stability, and other factors.
Business credit scores measure the company’s ability to repay its debts and manage its financial obligations. A higher credit score indicates that a company is a low-risk borrower with a higher business loan eligibility and is more likely to be approved for credit or a loan. On the other hand, a lower credit score indicates that a company is a high-risk borrower and may face difficulty obtaining credit or a loan. It is important to note that a company credit score differs from a personal credit score.
What is a good business credit score?
A good business credit score typically ranges from 300 to 900, with higher scores indicating better creditworthiness. A score of 660 or above is desirable, while a score below 600 is considered poor. For a business to avail benefits of a good business credit score, it is crucial to maintain a desirable credit score.
Factors that determine business credit scores
A company’s credit score is determined by various financial and credit-related factors, such as:
Payment history: A company’s payment history is one of the most significant factors determining its credit score. It includes the number of on-time payments and the number of late payments. Companies with a consistent track record of on-time payments are likely to have a higher credit score.
Credit utilisation ratio: This ratio is the proportion of credit used by a company. A higher credit utilisation ratio indicates that a company is using more credit than it can handle, which can lower its credit score.
Financial stability: A company’s financial stability is another critical factor determining its credit score. It includes the company’s net worth and liquidity ratios, which indicate its ability to repay its debts and meet its financial obligations. Companies with higher net worth and liquidity ratios are likely to have a higher credit score.
Credit mix: The credit mix refers to a company’s various credit accounts. A company with a diverse credit mix, such as a mix of credit cards, loans, and lines of credit, will have a higher credit score.
Credit inquiries: Credit inquiries refer to the number of times a company has applied for credit. A soft or hard credit inquiry is made every time someone checks your credit history, including you, lenders, banks, and even landlords. A high number of credit inquiries can lower a company’s credit score, indicating that the company is seeking credit from multiple lenders.
The importance of a good business credit score
In today’s competitive environment, any market enterprise would require the assurance of funds and resources to sustain the various highs and lows and inertia issues. It could be bidding on a tender or the initial payment on a business contract; in any case, a business requires credit. Here are a few key reasons why a good company credit score is important:
To secure loans and credit: Lenders and financial institutions often use a business’s credit score and report to determine whether to offer loans or credit. A strong credit score and report can help you secure financing for your business, while a poor credit score and report may make it difficult to access credit.
To take advantage of lower interest rates and flexible repayment terms: A high credit score makes it simpler for your business to get a loan at a lower interest rate. This is because lenders will feel less risky about lending to you and won’t feel the need to cushion the rate to protect their interest. Similarly, you have a better chance of selecting a tenure consistent with your financial situation, allowing you to choose a lengthier term to repay the loan and keep up your company’s stellar credit rating.
To improve your creditworthiness: By monitoring your company credit score and report, you can identify areas for improvement and take steps to improve your creditworthiness. This includes paying bills on time, reducing credit utilisation, and diversifying your credit mix.
How can you improve your company’s credit score?
Now that you’ve understood the importance of business credit scores, let’s look at how you can improve it.
Pay bills on time: Late payments can have a negative impact on your credit score. Make sure to pay all bills on time, including credit card bills, loans, and vendor invoices.
Keep credit card balances low: High credit card balances can also hurt your credit score. Try to keep your balances low and pay off as much as possible each month.
Limit new credit applications: Every time you apply for credit, it shows up on your credit report and can have a negative impact on your score. Limit the number of new credit applications you make.
Monitor your credit report: Make sure to check your company credit report regularly for errors and disputes any errors with the credit bureau.
Keep old credit accounts open: Length of credit history is one of the factors that determine your credit score, so keeping old credit accounts open can help improve your score.
Keep credit utilization low: Credit utilization ratio is how much you owe on credit cards versus how much you have available. Try to keep the ratio low and pay off as much as possible each month.
Maintain a good payment history: A good payment history is the most important factor in determining your credit score. Make sure to pay all your bills on time and avoid missing payments.
You can pick and choose a few of these tips to prioritise in the short term and make progress on each of these points in the long term, depending on your business. You’ll notice a positive shift in your business credit score over time.
What is a company credit report, and what are its components?
CRIF High Mark, an RBI-licensed credit bureau, provides credit scores and reports for businesses. A company credit report is a detailed report that includes information about your business’s credit history and creditworthiness. This report may include information about your company’s credit accounts, payment history, credit utilisation, and other factors that may impact your credit score.
That being said, the components of a business credit report include the following:
Basic information: This section includes the company’s name, address, and contact information.
Credit history: This section includes details of the company’s credit accounts, including the type of credit, credit limit, and credit utilisation.
Payment history: This section includes details of the company’s payment history, such as the payment due dates, amounts, and payment status.
Credit inquiries: This section includes details of the credit inquiries made by the company, such as the date and type of inquiry, and the lender’s name.
Public records: This section includes details of any public records associated with the company, such as bankruptcies, liens, and judgments.
The benefits of monitoring the business credit report
To protect your business from fraud: A company credit report can help you identify potential fraud and protect your business from financial loss. By regularly reviewing your report, you can spot any suspicious activity and take steps to prevent fraud like loan application fraud and identity theft.
To monitor your business’s financial health: Your company credit score and report can provide valuable insights into your business’s financial health. By monitoring your score and report, you can identify potential issues and take action to improve your financial health.
Ensure accurate account reporting: Make sure your creditors and lenders are completely and accurately reporting your payment history when you check your business credit reports. Additionally, make sure that any outdated information that could be viewed as “negative,” like missed payments or bankruptcies, has been removed from your business credit report after the appropriate amount of time has lapsed.
How do I get errors removed from my company credit report?
If you believe there are errors in your company credit report, you can contact the credit bureau that generated the report. The credit bureau will investigate the errors and, if found to be accurate, will make the necessary corrections to the report. If you have any complaint/ dispute related to CRIF’s business credit report you can raise a dispute. CRIF would provide resolution to the query raised within 30 days and share the response with the consumer
How often is the company credit score and report updated?
The company credit score and report are typically updated every month. Any changes to the company’s creditworthiness, such as changes in payment history or financial stability, will be reflected in the report and score.
Will my personal credit score affect my company credit score?
In most cases, your personal credit score will not directly affect your company credit score. The exception is if you are a sole proprietor or a small business owner. In these cases, your personal credit score may be considered in calculating your company credit score.
Is the company CIBIL report and company credit report different?
No, there is no difference between a company CIBIL report and a company credit report. Credit bureaus like CRIF High mark, CIBIL, Experian, and Equifax all provide company credit scores and reports. Your credit score is determined by an algorithm unique to each credit bureau.