A lot goes into calculating your business credit score. One aspect you may not anticipate is the impact of customer reviews. Here are the details....
A lot goes into calculating your business credit score. One aspect you may not anticipate is the impact of customer reviews. Our content partner Nav.com has the details!
You probably already know that it’s in your best interest to earn and maintain the best credit scores possible – both personally and for your business. There’s no question that a good business credit score can open doors to opportunities and save you money at the same time.
As a small business owner, customer reviews can also play an important role in the health of your company. According to a recent survey, 86% of consumers check online reviews before deciding whether to do business with a local company. Good reviews can help your business thrive and grow. An overabundance of negative reviews, however, could have a damaging effect.
But the impact that customer reviews might have on your revenue stream isn’t the only reason why you should be concerned with them. Online reviews, such as those posted on websites like Yelp and Google, might impact on your business credit score as well.
Customer Reviews and Your Business Credit Score
Let’s pause here for a little myth busting. Your business doesn’t have just one credit score; it has many scores. The same is true of personal credit scores as well.
Numerous companies create and sell different versions of business credit scoring models. Lenders use these models to generate commercial credit scores — numbers used to predict the risk of doing business with your company. The higher your business’ credit score climbs on a scoring model’s scale, the more likely it is to pay its bills on time (and the lower the risk your business represents to lenders).
When compared with business credit scores, your personal credit scores may be a little easier to understand. Personal credit scoring models are designed to consider the information found on one of your three consumer credit reports from Equifax, TransUnion or Experian. Aside from one exception, if a piece of information isn’t included on your personal credit report, it doesn’t impact your personal credit score.
Business credit scoring models, on the other hand, don’t always follow this rule. As far as your company is concerned, a piece of information doesn’t have to be found on a traditional business credit report in order to influence your business credit score.
Your business’ payment history on tradelines like business credit cards, loans, and vendor accounts usually has the biggest impact on your company’s credit rating. (Dun & Bradstreet’s PAYDEX Score, for example, is based 100% on your business’ payment history.) Yet the following information may be considered by certain business scoring models as well:
- Online Reviews
- Whether a Company’s Number of Reviews Is Trending Up or Down
- Responsiveness to Customer Reviews
- Business Age
- Date Incorporated
- Number of Employees
- Annual Sales
Why Do Lenders Care About Business Reviews?
Business lenders don’t worry about your business’ online reviews because they’re bored and need a way to pass the time. Rather, business lenders care about customer reviews because reviews provide another way to predict the risk of issuing credit to your company.
Business lenders need to avoid loaning money to companies who won’t pay back their debts as agreed in order to maintain a healthy cash flow and remain profitable.
Credit scores that consider online reviews can give commercial lenders an enhanced way to track and reduce their exposure to risk. According to Experian, online reviews, rankings, and ratings “can all shed light on a business’ health, growth, and stability.”
Experian says its Social Media Insight Program (which evaluates customer reviews and other data) can help lenders to predict risk 12% more effectively overall. When evaluating credit applications for businesses with little credit history, an Experian credit score enhanced with Social Media Insight can be 91% more effective.
The good news is that you probably don’t need to worry about a few random negative reviews hurting your company’s credit scores. Rather, it’s generally your business’ overall number of reviews (and the total number of positive vs. negative reviews) that matter most.
One word of caution — if you’re thinking about trying to game the system with phony positive reviews, don’t. While it’s fine to encourage reviews from real customers, scoring models that consider customer reviews are often designed to sniff out artificial reviews and other attempted manipulations of the system.
How Much Do Online Reviews Impact Your Business Credit Score?
In the end, whether or not online customer reviews will impact your business credit score (and by how much) comes down to one important factor — which credit scoring model is being used to evaluate your business. If a lender uses a scoring model that doesn’t consider customer reviews, those reviews won’t have any impact on your business credit score.
Even if a lender uses a scoring model that considers reviews, it’s important to keep things in perspective. Customer reviews can give lenders an added window of insight into your business when you apply for financing. Your company’s reviews — good or bad — aren’t going to replace the other important information and scoring models that lenders consider when evaluating your business credit rating.
A series of great reviews, for example, won’t offset the fact that your business has been paying its financial obligations late. In this situation, your business would still likely have poor credit scores. By contrast, a few negative reviews probably won’t tank your business credit scores if you have years’ worth of established credit and on-time payment history.
It’s wise to focus on collecting positive reviews from customers, both for the financial success of your company and the health of your business credit. However, while positive online reviews could potentially enhance your business credit scores, they’re not a substitute for the traditional business credit building habits you need to create.
This article originally appeared on Nav.com and was re-purposed with their permission.
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Loans are subject to credit review. Additional documentation may be required for credit approval. Loans will be made or arranged pursuant to California Department of Corporations Finance Lenders License #6050609.
Opportunity Fund, the nation’s leading nonprofit small business lender, believes small dollar loans help hard-working entrepreneurs make lasting change in their own lives and build stronger communities by growing businesses and creating jobs. Opportunity Fund’s community of donors and investors is creating an inclusive financial system that empowers women, immigrant, and minority small business owners. Our strategy combines microloans for small business owners and New Markets Tax Credit investments in high-impact community infrastructure projects. Since 1994, Opportunity Fund has deployed more than $750 million and helped thousands of entrepreneurs invest in their families’ futures. The organization has committed to lending an additional $1.2 billion to small business owners across the country and investing $174 million in community real estate projects by 2023.