How to improve your business credit score: 5 Important Tips

 

Your business credit score is critical to your company’s overall financial health. It may seem intimidating to learn how to raise your credit score, but doing so is an essential investment in the future financial success of your company. The credit score is a vital factor even when you’re looking for real estate to purchase. 

Let’s look into everything you need to know about company credit, including how to build up a good credit score, how you can repair it, and why it is so crucial for business owners to become more credit educated.

The importance of good business credit scores

Good business credit is indispensable for businesses. Your business credit score determines your creditworthiness based on your firm’s debt, payments, and credit history. Your credit score simply informs creditors, suppliers, and credit card providers of your reliability in terms of on-time bill payment and debt payback. 

You are more likely to get approved for business loans with favorable terms the higher your business credit score is. Consider cheaper loan rates, more considerable credit limits, or protracted repayment periods.

A strong business score might also give you more power when negotiating insurance rates or payment terms with vendors and landlords.

If you don’t already have business credit in your company’s name, start by taking the following steps:

 

1. Select a corporate or LLC business form to separate your personal and business finances.
2. Request an EIN.
3. Create a bank account for your company.

What is a good business credit score?

Your personal credit history, which considers the total amount of debt you owe and the number of credit cards you’re using, is the basis of your credit score. 

• Business credit scores are measured from 0 to 100, whereas 
• Personal credit scores range from 300 to 800. 
• Most credit bureaus consider corporate credit ratings of 80 or higher to be good, while
• Personal credit scores of 700 or higher are regarded as good.

Does your personal credit score have any role to play in your business’s creditworthiness?

Some lenders analyze personal credit ratings when examining business loan applications, but most prefer to consider company credit scores. Lenders will use your personal credit history to determine your creditworthiness if you don’t have business credit, whether it be because your company is young or you’re a lone entrepreneur.

How to build up your credit score if you’re struggling with debt

If you are knee-deep in debt and are worried about your personal credit score affecting your business in any way, taking advantage of a debt consolidation program might be the best course of action.

Unlike debt consolidation loans, a debt consolidation program doesn’t require a hard inquiry on your credit report and keeps it from getting affected by the program in any way. 

Since you’ll be paying off your debts, you won’t have to fret over your credit score taking a hit, and thus, undoubtedly, it is the best way to consolidate debt without hurting your credit score.

Raise your business’s credit score 

Although there isn’t a surefire way to raise your business’s credit score, several tactics can indeed be helpful.

Check your credit report and correct any mistakes if there are any

Your company credit score is generated by one of the three major commercial credit agencies using information about your credit. Lenders and suppliers also submit credit information to various bureaus. All three have slightly different formulas for calculating corporate credit ratings. 

It is wise to update your credit file with all three bureaus rather than just one for this reason. Start by looking at the policies for establishing or maintaining business credit on the websites of each credit bureau. You can examine your file for mistakes and discrepancies, submit the latest financial information, or check your corporate credit report. 

Report any problems you see right away to the credit bureau. Improving your score requires maintaining a clear, accurate, and current credit file.

Make on-time payments

One of the most straightforward strategies to raise your credit score is to make prompt payments to lenders, merchants, utility providers, and landlords. You might need to adjust your cash flow to make your payments on time, but even making a payment one- or two-day ahead of time can improve your credit rating.

Here are some pointers to help you make timely payments:

1. Organize your payables in a spreadsheet.
2. Set up automated online payments for recurrent expenses like utility bills and monthly loan repayments.
3. As soon as you receive an invoice, file it. You should also create calendar reminders to help you make your payments on time.
4. Set aside one day per week to pay your bills manually.

Reduce your credit usage rate

The percentage of credit you have used to the amount of credit available is known as your credit usage rate. Credit reporting companies generally value lower credit usage ratios since they indicate that you are not using all of your available credit. 30% is a good ratio, but 10% is an excellent one.

To reduce your credit utilization ratio, use the following tactics:

1. Bring your accounts as close as possible to zero. Your credit usage ratio decreases when you consistently pay off your debt.
2. Pay small amounts throughout the entire month. To ensure your amount is manageable, make several smaller payments and spread them out over the course of the month as opposed to one large payment.
3. Boost the amount you can borrow. Contact your credit card company or issuer by phone to request a larger limit. Your credit usage ratio drops when you raise your limit without raising your balance.
4. Create a new credit line. You will have more available credit and a lower ratio if you open another line of credit but don’t use it.

Get another business credit card

If you manage your expenditures and monthly payments well, getting a second or third business credit card can help you raise your score. 

Request a company credit card from one of the three main commercial credit reporting agencies. 

• Check the FAQ section of your credit card issuer’s website or contact customer care to learn more about whether they provide information to credit agencies. 
• Create a plan for utilizing your new company credit card as soon as you obtain it. 
• Use your card for specified company needs, such as fuel for delivery vehicles or office supplies.

Trade references

Credit agencies commonly use trade references to learn more about your payment history with suppliers and merchants. Trade references are determined by a number of variables, including the method of payment, the current balance owed, and the current past-due balance. 

Your business credit score might be increased with strong trade references. When purchasing supplies or equipment for your company from a few different vendors, request that they inform a business credit agency about your payments. 

Your trade references should be favorable as long as you adhere to the conditions of your trade agreement, such as paying within 30 or 60 days of getting your goods.

Closing thoughts:

Business Credit Score

Working to raise your business credit score is essential, regardless of how old or young your company is. Changing your payment patterns and upholding good credit can raise your score over time, giving you a better chance to get finance and keep expanding.

Need a Business loan to grow? Check out Capital for Business funding solutions or apply for a business loan today.

For more insightful articles and actionable tips about finance and business, check out Capital for Business’ The Working Capital and Financing Blog.

Did you enjoy reading this article? Here’s more to read. How Can Debt Financing Help You Start Your Own Business

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Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998 and currently works for the Oak View Law Group in California as a principal attorney.