Your credit score is crucial to your small business’s day-to-day operations. Potential lenders, suppliers, and insurance companies will review your credit score to help calculate the risk of insuring your business. The higher your credit score, the better the terms and rates you may qualify for, and the more benefits you’ll have for your business.
If you’re currently searching for the best insurance rate possible for your business, learn how your credit score can affect your premium and what you can do to improve it:
What is a credit score?
Your business credit score is a three-digit number (ranging from 300 to 900) based on a variety of information in your credit report and represents how safe you are as a borrower. Your credit report begins when you apply for credit for the first time, and it’s constantly updated as lenders send information about your accounts to credit reporting agencies.
A top credit score in Canada is 900, while anything above 760 is considered excellent. If your score is under 650, your score is in the fair to poor range, and you could struggle to get new credit. But don’t worry — your credit score changes over time as your credit report is updated, and you can improve your score by using your business credit responsibly.
How is my credit score calculated?
As a business owner, you have two credit scores. Your personal credit score is based on your payment history, credit utilization ratio, and the length of your credit history. Your business credit score is calculated based on your business’ payment history, debt-to-income ratio, credit utilization, how old your company is, and what industry it’s in.
Equifax and TransUnion are the two major credit reporting agencies in Canada that collect information on all consumers and businesses. They then share this information with financial institutions, including insurance companies and banks.
How does my credit score affect my business insurance premium?
When applying for business insurance, your insurer may ask for permission to complete a “soft check” of your personal credit score, business credit core, or a combination of both. While you’re not obligated to, and you won’t be penalized for refusing a credit check, you may miss out on a lower annual premium if your credit score is high.
Many insurance companies across Canada use your credit score as a factor when calculating your business insurance premium, so it’s best to consent to a credit check if you know you have a high credit score. But don’t worry! Even if you have a low credit score, it won’t cause your insurance premium to rise.
How can I improve my credit score?
If your credit score has some room to grow, here’s how you can improve your rating:
- Pay your bills on time. Credit companies look at how much and how often you pay off your debt. Consider automating payments to make sure you’re always paying your bills on time and building your credit score in the process.
- Reduce your credit utilization ratio. Credit companies use your credit utilization to determine how “risky” your spending is. For example, if you’re consistently using 80% of your available credit, it could hurt your score. Try to keep your credit utilization ratio below 30%.
- Don’t remove old credit card accounts linked to your report. If you paid an old credit card off, it could help your score because it shows you have experience paying off a credit card, which builds your credit history.
- Keep hard credit inquiries to a minimum. When you apply for a loan or request a credit limit, the credit company will do a hard credit check into your credit history. If you have multiple hard credit checks on your report, especially within a short period, you may raise some red flags with potential lenders, as well as lose points.
You have a lot on your plate as a small business owner. Reach out to a licensed insurance broker to find the best coverage for your operation and budget.
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