5 Credit Score Myths You Need to Know About
Your business credit score is a reflection of your company’s financial health and reputation. Unfortunately, there are many misconceptions about business credit scores that cause confusion for small business owners and leave them afraid to take the steps they need to build a better score. Here we debunk five common myths about business credit scores so small business owners can feel confident in taking the steps to build a better score for their business.
Myth 1: A business credit score is only important when you’re applying for a loan.
It’s true that your business credit score is important when you’re applying for a loan, but that's not the only time that it matters.
Your business credit score is also used to help landlords and vendors decide whether or not they want to work with you. It can also determine the interest rates you get on loans and can even determine whether or not you get approved for a loan in the first place.
Myth 2: Your personal credit score and your business credit score are the same.
Your personal credit score and your business credit score are not the same, although they may be related. Your personal credit score is based on your individual financial history, while your business credit score is based on the financial performance of your business. The two scores are calculated differently and can have very different outcomes.
Myth 3: You don’t need to worry about business credit scores if you pay your bills on time.
This is not necessarily true. While timely payments are important, it’s not the only factor used to determine your business credit score. Other factors such as the amount of debt your business holds, and the age of your accounts can also affect your score. It's best to speak to your accountant or financial advisor to get a better understanding of how each factor impacts your business credit score.
Myth 4: A bad score is irreversible.
A bad score is not irreversible. You can't exactly turn it around in the blink of an eye, but with hard work and dedication, you can rebuild your business credit score over time. This includes making sure to pay all of your bills on time, reducing your debt, and improving your overall financial health.
If you're struggling to improve your business credit score, then the help of a financial advisor is key. They'll be able to look at your financial situation and provide you with personalized advice on how to get back into good standing.
Myth 5: Late payments are removed from your record once you settle them.
Do not fall into the trap of believing this myth. Late payments can stay on your record for up to seven years, regardless of whether or not you have settled them. Don't think that you can just pay off your past due bills and have them removed from your record.
However, if you are currently in debt, paying off your balances can help improve your score over time - but it certainly doesn't happen overnight.
Final Thoughts
There are a lot of myths and confusion around business credit scores, but with the right information, you can make sure that your credit score is a reflection of your business's financial health. By debunking these five common myths, small business owners can feel confident in taking the steps to build a better score for their business.
Nothing on this page is intended to be or should be construed or taken as accountancy, investment, tax or any other kind of advice. We recommend individuals and companies seek professional advice on their circumstances and matters.