There are many businesses in the market which need creditors who have good credit scores to get money for fulfilling goals. Before finalizing a creditor though, it is necessary to know about the financial history and the risk appetite.
A large part of this information can be obtained from the business credit report. It is possible to gain permission through credit bureaus to access these credit reports.
Well-known credit agencies are present all over the world. There are companies in the market which are in the business of contacting these bureaus and giving credit information. The information about credit score check online is valuable in the following ways:
- It cautions a company to do business with another that is weak or is incapable of making payments on time.
- In case the financial position of a business is already on the way down, this information is visible through the credit report.
Personal Vs Business Credit Scores
Both of the above are completely independent of each other and measure different parameters. The ability of an individual to pay off debt is measured using the personal credit score.
On the contrary, the business credit score determines whether a business will be able to complete its financial obligations or not.
Through the personal credit score, a lender is able to determine whether to grant credit to the person being evaluated or not.
Additionally, the score also tells about how much to lend and the terms of the loan. A person with a high credit score is more trustworthy than one with a low score.
The chances of having a business loan approved are higher when the business or commercial credit score is good. While a higher credit score improves the chances of getting favorable terms on the loans, a low score implies high-interest rates. In certain situations, businesses may not be permitted to borrow at all.
Factors that Determine Credit Scores
The following factors determine whether personal credit scores will be low or high:
Individual Payment History
The credit score of a person who has a better history of paying on time as compared to another will be higher
Length of Credit History
If an individual has been able to keep his or her credit score high over a long period of time, it will be favorable for obtaining any kind of loan
Amount to be Owed
The main reason for having a high credit score is to be able to get a loan whenever necessary. Anyone who exhausts the limits on his or her cards and lets the balance remain high for many months will not have a healthy credit score.
New Credit Accounts
The credit risk of a person who opens several credit accounts over a short period of time is very high.
Major Uses of a Business Credit Score
This type of credit score is most helpful in separating business expenditures and incomes from personal ones. While applying for a business loan, the underwriter will always go through additional documents such as bank statements and business credit scores. The main reasons to keep business and personal finances separate are as follows:
Liabilities with respect to Debts
If the business is structured like an LLC or a Corporation, documented proof of business finances being separate from personal finances prevents creditors from laying their hands on personal assets in case of debt.
Businesses can claim from a long list of tax deductions, but this will require documentation to support the claims. If an audit takes place, it must be possible to show that every expense was directly related to the business operation.
If the proof is not shown, there are high chances of being slapped with fees for fraud, negligence, or late payment.
Top Credit Bureaus
There are many third-party finance companies in the market that promise customers of being able to pull credit scores for them. In reality, such companies have contacts with credit bureaus and are able to get the credit scores from there. Banks and other financial institutions in India report to the following three main credit bureaus:
The loan amount and their process completely depend on the credit score of any person. The credit score will decrease if any company misuses it.
It may also harm the reputation of a person. However, there is no decrease if customers access their credit reports on their own.
It is truly important to spread proper awareness about credit scores and other related instruments in India. This is also necessary because Indians haven’t traditionally been fond of credit instruments through the years. In comparison to individuals, businesses are likely to have more knowledge at the top.