Why is credit score important (updated)
Lending institutions give businesses that come for a loan a credit score. It is a number that provides a conclusion on your business credit reports. The credit score helps lenders understand the strength of your business model, how responsible and committed you are to achieve your business goals, and whether your company has the ability to make payments on time. So, this number either increases your opportunity to get a loan or decreases it.
An interesting fact for you to chew on; research shows that most startup businesses fail within the first 3 years of business, not because they lack abilities, talents, or a poor business plan, but because they have limited access to funding.
Typical Range for credit score
Credit scores for businesses may vary with different lenders, but the most usual range is 1-100. The higher the score, the better for business it is to get a loan as it means the company is not regarded as a risky one to lend to. 80 or higher is considered to be excellent.
An example of how a rating agency can rate risks based on specific credit scores:
A score of 1–69 indicates a high risk of late payment, 70–79 indicates moderate risk, and 80–100 represents a low risk.
Debitum Network credit score (old scoring system)
On Debitum Network platform Abra 1.0 assets can be filtered according to three categories and you can form your briefcase accordingly.
Just for the sake of giving you an example (numbers are for illustration purposes), which credit score category a specific number would go to:
- 85-100 would mean conservative
- 71-84 would mean moderate
- 0-70 would mean aggressive
Credit score system updated. New scoring system took effect on the 14th of November.
|Credit Score in a letter rating||Credit Score in a 100 point scale||Probability of default within 12 months|
|100 – 80||0.00% – 0.12%|
|79 – 73||0.13% – 0.16%|
|72 – 69||0.17% – 0.31%|
|68 – 67||0.37% – 0.46%|
|66 – 65||0.55% – 0.70%|
|64 – 63||0.84% – 1.06%|
|62 – 61||1.27% – 1.60%|
|60 – 59||1.92% -2.42%|
|58 – 57||2.91% – 3.65%|
|56 – 55||4.39% – 5.50%|
|54 – 53||6.61% – 8.27%|
|52 – 51||9.92% – 12.37%|
|50 – 49||14.82% – 18.39%|
|48 – 47||21.97% – 25.40%|
|46 – 45||28.83% – 32.26%|
|44 – 0
||Expected to default|
Advantages of having a good credit score:
- Your business helps you to have a good image with your business partners, suppliers, investors, and lenders
- You can easier qualify for business loans as well as growth and expansion and borrow more
- You can get business loans at lower interest rates and save you money
- It can possibly get lower insurance premiums
- You may get business loans without signing a personal guarantee for any debts your business cannot pay
- It protects your personal credit.
Some of the negative things that may negatively impact your business credit score:
- Property arrests of a company make the company look riskier and decreases credit score as a result
- Companies that show court records (even one) have a risk of getting their credit scores reduced
- Having a high number of claims or lenders results in higher risk and consequently, lower credit score.
- Insolvency private individuals or managers of a company will likely push credit score down.
The main methods to improve your credit score:
- You have to separate business and personal finances
- Get a business credit card, start building a line of credit
- Choose business partners and lenders who will report your good payments to business credit agencies
- Pay your bills and payments to creditors on time or better early
- Do not exceed your credit utilization ratio by 30 percent
- Have a habit of checking your credit report and correct any mistakes/errors in it.
Debitum Network Platform Abra 1.0 is Live!
On the 3rd of September, we reached a significant milestone on our roadmap and delivered the first version of our platform Abra 1.0.
It does not matter whether you are a conservative, moderate or aggressive investor, you will find assets according to your risk tolerance and be able to invest for an average annual return of 7-11%.
Small businesses can register on our platform and borrow from 10,000 EUR to 1 million EUR.
Service providers can sell their services of risk assessment and debt collection to clients all over the globe for an attractive compensation.