What your credit score can do for your business


If you want to explain your business in the future, one thing you need to prioritize is your credit score. Having bad business credit can negatively impact your store in many ways, from causing difficulty in obtaining financing to getting approved for a lease.

Let’s first see what factors affect your credit score.

What makes up your credit score?

One of the most common ways to identify your credit score is through the Fair Isaac Corporation (FICO). The FICO score is your three-digit number that summarizes your credit report, which is commonly used by banks, credit unions, and lenders when investigating your creditworthiness.

Your FICO score is calculated based on these categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and combination of credit (10 %).

Why Does Having Bad Credit Affect My Business?

Having bad credit can be especially damaging for auto repair shops because it prevents you from continuing to grow or making strategic decisions. But why?

  • It is more difficult to apply for new business loans. Having bad credit makes it difficult to get financing, which you can use to buy new equipment, hire more employees, or expand your store. Even if you get financing, lenders won’t be able to offer you lower interest rates and better terms.
  • You benefit from high insurance rates. All businesses need insurance to cover emergency expenses, such as employee health hazards or on-site fires. When applying for one, however, insurance companies will look at your credit score to determine your rates. When you have a high credit rating, your insurance premiums are lower. Indeed, some insurance companies may interpret your bad credit as poor financial management. To minimize their risk, they will jack up your rates.
  • It may be more difficult to obtain contracts with a supplier. Since your credit score is primarily based on your credit history, some providers may associate your bad credit with late or delinquent payments. Many suppliers will only work with business owners who have good credit because they don’t want to risk not getting paid.

How to get financing even with bad credit

If you need capital for your auto repair shop, you can always apply for alternative financing. Some small business financing, such as a line of credit, is available to you even if you have bad credit. Here are a few tips.

  • Set up guarantees. If you urgently need cash to run your auto repair shop, you can provide collateral for a loan. You can use your equipment, mortgage, and real estate as collateral to minimize your risk of loan default.
  • Get a consignee. A consignee is someone who promises to repay the loan in case you don’t pay on time.
  • Apply for small business loans for borrowers with less than stellar credit. Financing options such as invoice financing or merchant cash advances are great options for business owners with poor credit. These loans do not focus on your credit score, but rather on pending bills and future sales. However, expect to pay high interest rates and fees.
  • If you don’t need financing now, but plan to expand your store in a few years, it’s best to improve your credit score while it’s early. Start by paying your bills and debts on time and avoid high credit utilization.

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