Most consumers in Canada are aware that they have a personal credit score and report. But did you know that business owners in Canada have a business credit score and report as well? If you are a business owner in Canada, it’s important for you to be aware of, and understand how your business credit can affect the success and growth of your company.
If you’re an Indigenous business owner or entrepreneur, be sure to read this.
Business credit scores and reports measure creditworthiness, similar to the way personal credit scores do, but they work much differently meaning that your knowledge of personal credit scores doesn’t necessarily translate. Below are characteristics of business credit scores in Canada.
With personal credit scores, authorization must be obtained from the individual in question before a credit score can be checked because of consumer protection regulations. These regulations do not apply to businesses, which means that anyone can check your business credit report so long as they pay the necessary fees. Since virtually anyone can check your business credit score, it is essential that you monitor and sustain your business credit score regularly.
Considering a credit monitoring service? Click here first.
A similarity between business and personal credit scores is that they take time and effort to build. To build your business credit score, obtain a line of credit in your business’s name, only use 20% to 30% of your available credit and always pay your bills on time or in advance. The earlier you start building your credit score, the better. It is challenging to quickly build credit for a business and you never know when you may need to use it to your advantage.
Look here more information about business borrowing using a credit card vs. a line of credit.
In Canada, there are three main credit bureaus for businesses, Equifax, Dun & Bradstreet, and TransUnion. Each credit bureau uses a different method of calculating your score which means that your business will have multiple scores. In addition, the credit bureaus have different types of credit scores, for example, Equifax has a score for credit risk, business failure, and payment index.
Unlike personal credit scores, business credit scores are typically between 0 and 100. However, if the credit bureau has different types of scores for the one business, the range of your score may vary.
Trying to make your business greener? If so, check this out.
Unless your business has been operating for several years and has superb credit scores, potential lenders will often check the personal credit scores of business owners in addition to the business credit score. Usually, lenders will ask for a personal guarantee if you’re applying for financing for your business. A personal guarantee means that you are still responsible for the loan even though it is in the company’s name.
Look at this if you’re applying for a job in Canada that requires a credit check.
Because potential lenders will likely check your personal credit score, it is good practice to keep your personal score as high as possible. You don’t want to give potential lenders a reason to turn your business away from financing or favourable loans.
The break down of a business credit report is different than a personal credit report. Business credit reports are also more complex than personal credit reports, the subsections are discussed below.
It is challenging to build credit for your business, although, if the right habits and processes are adopted early on, your business will be on its way to healthy credit. Credit scores for businesses shouldn’t be overlooked because they can help get your business off the ground and maintain a healthy status.
Before starting to build your credit, it’s important to understand what criteria credit bureaus are looking at. In general, they aim to answer the following questions:
Regardless of whether your business is incorporated or a sole proprietorship, having separate finances for personal and business purposes is a good idea. By having isolated business accounts, you will ensure that your business credit score is clean, accurate and represents the activity of the business, not your personal activity. You don’t want the activity of the business interfering with your personal score and vice versa.
Now that you’ve separated your finances, it’s time to open up credit accounts and lines of credit for your business. By using credit accounts wisely, you will be establishing your company as a trustworthy borrower. As with personal credit scores, the better you manage your credit, the more financially stable and ideal for lending you will be considered.
Using a personal line of credit for business purchases? Read this first.
You want to pick lenders that report to the credit bureaus so that everyone will see how great you are at paying on time through your credit score and report. If you are unsure of whether or not a vendor reports to the credit bureaus, simply ask them. If you’ve already opened an account with a vendor and they don’t report to the credit bureaus, consider switching.
Which credit bureau to lenders check in Canada? Find out here.
As with personal credit scores, the better you are at paying on time, the better your credit score will be. The same applies to business credit scores, although, there is one catch. You can’t achieve a perfect credit score by paying on time. If you want your score to be the highest it can be, you actually have to pay earlier than the deadline. Set due dates in your calendar and reminders on your phone so you don’t forget to pay on time or in advance.
Here’s how you can rebuild your credit after a late payment.
Regularly checking your credit score and report as a business will identify errors and eliminate them. This is important for your business credit score because it will reveal possible fraud that is occurring and ensure that you are not turned down by lenders due to inaccurate information. Anytime your information changes, be sure to update the credit bureaus so that people viewing your credit report will have the most up to date information.
Need to dispute an item on your credit report? Read this to know how to do it.
Credit utilization is a factor that is considered in your business credit score. For your credit scores benefit, ensure that you make use of your credit as opposed to leaving it idle for an extended period of time. Although, there is a bit of a balancing act involved because you don’t want to max out your credit either. A good credit utilization rate is somewhere between 20% and 30%.
Click here to find out how the money you owe affects your credit score.
Credit bureaus monitor your company’s public records too, they will take note of any legal filings made in your business’s name. This includes bankruptcies, liens, lawsuits, and any other public records that highlight late or incomplete payments. Credit bureaus evaluate these factors identified in public records because they indicate risk.
Need to improve your credit score this year? Then take a look at this.
Because businesses aren’t protected by consumer protection regulations, anyone can check your business credit score and report. The most obvious individual that will check your business credit report is potential or existing lenders.
Other businesses can check your credit score too. Usually, they do this to determine if they can trust that you will pay them for a product or service. Businesses extending credit to other businesses cannot afford to not get paid, particularly small businesses, which is why they consider business credit scores. This concept goes both ways, if you are extending credit to another business, it is definitely wise to do a quick check up on their credit score and report.
For more ins and outs of business credit, click this link.
Business credit scores and reports are an important factor in the growth and success of your business. Not only are they beneficial for growth, but they are also a helpful tool to use when doing business with other companies and when applying for additional funding. If you’re interested in learning more about your business financing options, Loans Canada can help!
Rating of 5/5 based on 1 vote.
Veronica is a writer who specializes in creating unique and educational personal finance content. She has extensive experience writing blog posts for companies in the financial sector. Veronica's background is in accounting as she graduated from Western University in 2017 with a degree in accounting. She is passionate about using her accounting expertise to help others with their personal finance questions and issues and enjoys using her writing to educate Canadian readers. When Veronica is not writing, she enjoys film, reading, travelling, going to the gym, and listening to music.
Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.
Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
Borrow up to $50,000 from Fairstone and be automatically entered to win up to $5,000!*
Earn an average 5%¹ cash back at thousands of partners and at least 0.5%² cashback guaranteed.
Build credit while spending money with the Refresh Financial VISA card.
With KOHO’s prepaid card you can build a better credit score for just $10/month.
All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.
When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.
Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.
