Credit Score – Business vs. Personal

A person’s credit score is determined based on what their specific level of risk is perceived to be. The same basic principle is used to determine the credit score of a business however there are some differences. The biggest difference is the fact that rather than basing the score on a specific person the business as a whole is used. Also taken into consideration is the history of the company as well as transactions they have had with other businesses. All of this information is used to determine how much financial risk is involved on whether it is advisable to allow certain business to borrow money.

Much of the information used to determine how much risk is involved with a specific business is collected from companies which have had previous dealings with that business. Some information that is used to make this determination includes lenders and suppliers the company has used in the past. Also looked at are such issues as financial lawsuits and reports connected with the business as well as any liens or judgments which may be against the business.

In addition to this there are many other key pieces of information which are used to assess the potential risk of a business. One of these is how the business pays their bills. This includes utility bills, property and equipment rentals and previous loans. Another important factor is how much debt the company has versus the amount of cash flow and other financial resources. Net worth and operating capital of the company are also important considerations as well.

Lastly are the considerations of the profile of the specific company. These are associated with the size and background of the company as well as the reputation and overall structure. When it comes to the credit score of a business it reflects how important the company is as well as how large it may become. Businesses with low credit scores are often not very well known and as a result many of these businesses do not last very long. One reason for this is that these companies do not possess a high enough credit score to grow large enough to make a name for themselves.

As you can see a credit score can have a huge impact on the success of a business. The better a business handles their transactions and finances the more likely that business is to become successful and grow. Low credit scores can prevent this from happening and cause a business to go bankrupt quite quickly.