A business credit score measures how well your company handles debt. A good business credit score can help you gain capital to grow, as well as help you borrow funds when cash is low. You can improve your small business credit score with a few simple steps.
Improve your small business credit score
Learning how to get a small business loan with bad credit is something that you can avoid. To improve your small business credit score, try these four tips.
1. Update your company profiles
A great way to establish business credit is to build credit profiles with several credit bureaus. Your vendors might check your credit history through a credit bureau. But, you do not know which credit bureau vendors will search. Consider listing credit profiles with different bureaus.
Credit bureaus don’t calculate business credit scores with the same formula. Each credit bureau uses a different method to calculate your business credit score. Having a credit profile with several bureaus helps support your business debt management potential.
Your credit profile shows your company’s banking and payment data. It also contains information that suppliers and lenders can use. The profile includes information such as the number of years you’ve been in business, how many workers you employ, and your gross sales. Look at the information in your credit profile to make sure it is complete and current.
2. Pay more than the minimum amount due
Paying more than the minimum amount owed each month improves your business credit score. Paying over the minimum payment due helps you reduce your balance. The lower the balance is, the less interest you incur.
When you pay more than the minimum amount due, you also help improve your credit utilization. Credit utilization is the percentage of how much you owe in credit compared to your credit limit.
Good credit utilization helps you raise your business credit score. Credit utilization also shows lenders how well you manage business debts.
Credit utilization reflects your creditworthiness. The better you manage debts, the less of a risk you appear to lenders. Keep your credit utilization below 30% to improve your business credit scores. For example, if your credit card limit is $10,000, you want to keep the balance under $3,000.
3. Pay bills on time
Paying your bills on time is a major factor for improving your business credit score. Prompt payments help you form relationships with your vendors. Having strong relationships with suppliers is key to gaining more favorable payment terms.
Paying your bills early improves your small business credit score. Credit bureaus look at how long it takes you to pay debt when they decide your business credit score. For example, Dun & Bradstreet only assigns perfect scores to business owners who pay early.
Never miss a due invoice again. Use our Accounts Payable Aging report to see what you owe vendors and when you owe it.
4. Separate business and personal expenses
You should not mix your business and personal finances in the same account. Keeping business and personal transactions together causes disorganized accounting records, inaccurate taxes, and overspending. These situations are bad for your business credit score.
Open a separate business bank account for your company’s expenses. That way, you do not mix personal and business funds. The more organized your business credit records are, the better your credit score.
Instead of using a personal credit card to pay for company expenses, you can get a business credit card to build business credit. Avoid maxing out your business credit card. Taking on too much credit debt damages your business credit score.
Why you should improve your small business credit score
A good business credit score helps your company gain lines of credit. You can use the credit to help finance your business. The higher your credit score is, the better payment terms and interest rates you will receive.
In an SBA article, Marco Carbajo, a Business Credit Specialist and entrepreneur, says:
Having strong business credit scores and ratings are key to getting approved for trade credit and financing for your company. In the same way that personal credit scores serve as a financial report card, your business credit scores grade the creditworthiness of your business.”
If you have a low credit score, you may get unfavorable payment terms and high interest rates. Lenders can deny you credit.
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This article is updated from its original publication date of August 16, 2016.
This is not intended as legal advice; for more information, please click here.