The credit score of your small business plays a vital role in its daily functioning. Potential lenders, suppliers, and insurers assess your credit score to gauge the risk associated with insuring your business. A higher credit score can lead to better terms, rates, and overall benefits for your business.
If you're currently seeking the best insurance rates for your business, understanding how your credit score impacts your premiums and taking steps to improve it can be beneficial.
What is a credit score? Your business credit score is a three-digit number ranging from 300 to 900, derived from various details in your credit report. It reflects your reliability as a borrower and evolves as you engage in credit activities, with lenders continually updating your credit information.
In Canada, a top credit score is 900, with anything above 760 considered excellent. Scores under 650 fall into the fair to poor range, potentially posing challenges in obtaining new credit. However, your credit score can improve over time through responsible credit utilization.
How is my credit score calculated? As a business owner, you have two credit scores: personal and business. Your personal credit score considers factors like payment history, credit utilization, and credit history length. Meanwhile, your business credit score factors in payment history, debt-to-income ratio, credit utilization, company age, and industry.
Equifax and TransUnion are the primary credit reporting agencies in Canada, gathering and sharing consumer and business credit information with financial institutions, including insurers.
How does my credit score impact my business insurance premium? When applying for business insurance, insurers may conduct a "soft check" on your personal or business credit score, or both. While not mandatory, consenting to a credit check can potentially lead to lower annual premiums if your credit score is high.
Many insurance companies in Canada factor in your credit score when determining business insurance premiums. Therefore, it's advisable to authorize a credit check if you have a strong credit history. However, having a low credit score won't directly increase your insurance premiums.
How can I enhance my credit score? To improve your credit rating, consider the following strategies:
- Timely bill payments: Automate payments to ensure you consistently pay bills on time, positively impacting your credit score.
- Reduce credit utilization: Aim to keep your credit utilization ratio below 30% to demonstrate responsible spending habits.
- Maintain old credit card accounts: Keeping old accounts open showcases your credit history and responsible credit management.
- Limit hard credit inquiries: Minimize applying for new credit or requesting credit limit increases to avoid multiple hard credit checks that can impact your score negatively.
Implementing these practices can contribute to a healthier credit score over time, benefiting your business in various financial aspects.
You have a lot on your plate as a small business owner. Contact us to find the best coverage for your operation and budget.
