How Does Company Credit Score Work?

1. How Does Company Credit Score Work? The number called as the Credit Score is the moniker of your company credit worthiness. It decides how strong your company is in the eyes of the credit agencies and how well is your business in terms of finances. The score is maintained by credit bureaus in the country and is used by banks and other credit agencies like the non-banking finance companies (NBFCs) to determine the financial worthiness of your company. There are a lot of factors on the algorithm that decide the credit score. How business credit score is calculated? The credit score of a company is calculated on the basis of outstanding balances besides a lot of other factors including the debt the company has and the availability of credit relative to the debt the company has. Thus, companies do a lot of homework on keeping their debt down, lessen their outstanding besides, keeping their relative credit high. This helps keep them financially strong and also pose them in a better fashion in the eyes of the creditor banks and NBFCs. This also helps them take loans whenever they need as they have a better financial standing. Minimum Required Credit Score Before lending money, lenders analyse a company on a lot of factors. Among these, business credit score or company credit scoreis the most important one. A company’s loan eligibility entirely depends on the credit score. Thus, companies strive to keep their credit score intact or improve it in order to always stand eligible for loans whenever they need it. The minimum required credit score for a small business to be eligible for a business loan is 640+ however, it is also advisable to have a better score. Banks Look for Company Credit Score before Giving A Business Loan Banks and other credit agencies such as NBFCs check the credit score of a company before deciding whether a loan should be given or not. Thus, credit score is the first on the checklist for eligibility of loan. The other five factors banks look for include capacity of credit, availability of collateral for credit, capital for credit, character of the company and the latest condition of the company.

2. Credit Score Indicator of Company’s Financial Health Credit Score is not only useful in getting loans or keeping a goodwill in the industry. In fact, credit score keeps tab on the financial health of a company. A low credit score or average credit score means that it’s time to be cautious for the management to do something to improve as long-term low score means that the company is not able to cope up with the financial resources at hand. Besides being an indicator of financial health, the credit score indicates whether the company is heading towards growth. A long-term low score indicates there is some problem with the management of finances or there is definitely something wrong with the overall health of the company. It can be internal factors or it may be external ones such as low mobility in the market, economic slump or slowdown etc. Thus, experts always advise to keep the credit score as high as possible so that when there is some fund crunch, banks and other financial institutions may not face any difficulty in lending a helping hand to the company. Keep Tab on Credit Score, Make Efforts to Improve It It is always advisable to keep the financial situation of a company as strong as possible so that when difficult time comes, the credit agencies do not hesitate in helping it. It is like keeping the present situation strong so that the company can face bad weather whenever it may come. Credit Score is the best gauge of a company’s financial status. Thus, it is advisable to keep tab on the score at regular intervals, at least every quarter so that one can assess the situation and take action accordingly. Agencies such as CreditQ can help a lot in this. It can help agencies with the company credit score generation and also offer other professional finance related advice. Credit Score Brings Transparency in the Industry Where it is a pointer to company’s financial stability, the credit score also brings transparency in the industry. No company can evade from being evaluated and thus it gives a fair idea to the credit agencies to assess the financial condition of a company. The score also helps in maintaining transparency as anybody, any credit agency can check the credit worthiness of a company and thus however, hard the company plans to highlight its strong aspects and hide its weak spots, the banks and credit agencies will come to know about the exact situation of the company. Credit Score Brings Stability in the Industry Not only does credit score works for the company it works a lot for the whole industry as well. When companies get credit wholly on the basis of their credit worthiness, there would be minimum chances of non-performing assets for the credit agencies. Thus, there would be little chances that the credit or loans to companies would impact the industry. Banks and other credit agencies will have little or no hesitation in offering loans to companies with excellent credit score. On the other hand, if companies strive hard to keep good credit score, they will have no problem in repaying their loans. A Health Indicator of The Nation’s Economy Credit score is not just a show of credit health of a company but it also displays how companies in that nation perform. If a nation has a large number of bankrupt companies or companies failing to pay their dues on time or entirely failing to pay their debts, or say companies with bad credit score, then it gives a fair idea of the health of that nation’s economy. Thus, for companies it is their responsibility towards the nation that they repay their loans on time and clear their dues in a timely manner so that not only their credit score remains good but the nation’s economy also flourishes with them.