Remember that as a kid, you have a report card in school that indicates your academic performance? It may have another version in adult life in the form of a Credit Report. Your credit report takes into account how well you’ve been doing in your business finances. Your credit score will also give banks, lenders or companies a feel of how well you manage your business credit. And yes, the higher your business credit score is, the better.
What is a Business Credit Score?
Your credit rating or business credit score sums up your credit report into one number. This number is a summary of your business’ credit history. It may include information such as time in operation and how many credit inquiries your business had. It will also look into your company details, commercial credit information, and company director information.
In short, your business credit score reflects the health of your business finances. It’s a snapshot of the creditworthiness of your business and how trustworthy you are for lenders.
Your credit score determines how other businesses, lenders, and banks will view your company. For this matter, having a healthy business credit score can help you secure better loan rates, negotiate better terms with vendors, and help you win contracts with companies.
What Defines a Good Credit Score?
Credit agencies have a comprehensive system for credit scoring. The score is based on a scale of 0 to 1,200 and indicated from Below Average to Excellent. Here’s the range for each rating:
Below Average: 0 – 509
Average: 510 – 621
Good: 622 – 725
Very Good: 726 – 832
Excellent: 833 – 1200
Having a credit score in the Average and Good range is already fine for most lenders. The higher your credit score is, the better. You will need to start worrying when your score gets lower, lower than 400.
Building a good credit score takes time, so it is best to be diligent with your business finances as early as now. Newer businesses or start-ups would have to build their business credit history for at least one to two years to get better financing options.
On the bright side, there are unsecured loan options available that don’t focus on credit scores and require fewer requirements on applications. Take a look at the financial solutions that best suit your business here.
How to Improve Your Business Credit Score
The best way to improve your business credit score is to follow through with patience and diligence in your finances. Be consistent in your regular financial operations rather than doing miscellaneous things in the hopes of giving your score a boost. There are no quick fixes when it comes to improving your credit report. It takes consistency to build a strong credit score that makes your business trustworthy.
Here are highly recommended strategies to build up a good credit score:
Check Your Credit Report Regularly
Check your credit report from credit reporting bodies such as Equifax. Some credit reporting bodies offer you a free credit report on your first enquiry and may charge you on the next ones. Whether you’ll be able to get a free or paid report, this will be the first step in managing your credit score.
Once you know your score and get to see what you have to deal with, you’ll find the information needed to raise your score. You’ll determine which accounts are negatively affecting your credit report and any item you can dispute from it.
Many business owners are not aware of their company’s credit score, which can be detrimental to their business. But did you know that inaccuracies or errors in your report can significantly decrease your credit score? It pays to regularly check your credit report to avoid such issues. Review your report at least once a year, or more during certain situations.
Pay Your Bills on Time
Late payments are a significant factor that can lower your credit score. Anything else that you will do to improve your credit score will be canceled out by your actions as a debt risk. To avoid late payments, set alerts on your phone when it is time to pay the bills. You can also make a spreadsheet and schedule which incoming cash flow has to pay specific bills at a particular date every month. Pay your bills on or before the deadline to avoid negatively affecting your credit score.
Open a Business Line of Credit Before You Need One
Getting a line of credit or business credit card will help build your business credit score. As with everything, you have to pay off your balances diligently. Your consistent and prompt repayments will show through your trustworthiness as a borrower. It’s also an opportunity for you to separate personal and business expenses by having a line of credit specifically for business needs.
Getting a line of credit will also be useful for your daily business operations. It will come in handy when there are emergency expenses or contingencies. You can always tap into a line of credit for short-term expenses such as paying contractors, buying inventory, or sustaining daily operations.
Don’t Apply for New Business Credit Cards or Loans That Often
It pays to keep your debt obligations low. Make sure that you can handle all the business credit cards and loans you’ve taken. Banks and lenders prefer that you have fewer existing obligations before they can allow you to take on more debt. Applying for new business credit cards or loans will also result in numerous credit enquiries, which will look bad on your credit report.
Decrease Your Credit Utilisation Ratio
Credit reporting agencies will look at the ratio of the credit you used with the amount of credit available. It’s best to keep a credit utilisation ratio of 15% to improve your credit rating. One way to improve on this ratio is to pay your bills more than once a month so that they won’t pile up. You also have to pay off your balances to decrease the ratio, or at least keep them low as much as you can.
Another way is to open a new line of credit even if you don’t need one at the moment. Having more credit available and not using it will make credit reporting agencies see that you have healthy finances. In turn, it will positively affect your credit utilisation ratio.
Another way to hack through this ratio is to ask your credit card company to increase your spending limit. You’ll be able to decrease your ratio just by doing this. Minimise the amount of money you spend on credit to further improve on your score.
Establish Credit Accounts with Suppliers
If you have been working with certain suppliers for a long time, establish a credit account with them. It will increase the number of positive payments to your file, and thus improve your business credit score.
If you’re still new in business, look for reputable suppliers whom you can always get a good deal. Create a good payment relationship with them and ask if you can have a credit account with them. You’ll eventually build up your credit score this way, together with other tactics that will boost your rating.
Add Positive Payment Experiences To Your Credit File
Adding from the previous tip, you can add more positive payment experiences to your file by adding trade references. Not all suppliers or vendors share payment data with credit reporting agencies, but you can add these references to your business’ credit file manually.
Dispute Any Inquiries or Errors
It’s possible to work with credit reporting agencies and credit card companies to remove the negative feedback from your credit file. Hard inquiries and unpaid accounts can negatively affect your credit report. If you see something on your report that shouldn’t be included, call the agency or company to dispute it. Review your credit report regularly to ensure that it is accurate and well updated.
Pay For Delete with Collections
If your debts went to collections, be particular of solving this issue in your report. Even if you have already paid off this debt, it will still show a history of negative accounts on your credit score. It’s best to explicitly ask a credit reporting agency to delete this negative account from your report. Removing the negative account will raise your credit score, regardless of whether the account has been paid or not.
Keep Your Credit Card Balances Low
Experts recommend that you don’t max out your credit cards. The higher your outstanding balances on credit cards or lines of credit are, the lower your credit score is likely to be. You can determine how much you are using by dividing your credit card balances by your total card limits. Keep the amount of credit you use to around 30 per cent or less. Remember as well that your consumer credit score is a factor in business credit decisions.
Getting Better Business Loans With Your Improved Credit Score
Be mindful of all activities that affect your business credit score, and don’t forget to check your credit report regularly. The key here is to improve the cash flow of your business so that you can settle all outstanding debt and elevate your business finances. A better credit score can also affect how you will be able to grow your business.
You can improve your credit score with the smart financing solutions available here at Bizzloans. You’ll get to compare top-rated business loans perfectly suited for your business needs. Start your way to better business financing by getting a quote below.
Russel needed an injection of cash to pay his employees while he was waiting to be paid. We were able to have the funds in his account 48 hours after he first applied.
Max needed funds to renovate his restaurant in NSW. He didn’t want to put his property on the line to secure a loan with the bank. We were able to get him over 100k without offering any security.
Anna needed funds to renovate her practice in Adelaide. We were able to get her the funds she needed with only providing her business bank statements and photo ID.