Your business credit score is used by lenders and some vendors to determine your suitability for credit. If you have a low credit rating, banks and other financial institutions may refuse your business loan applications or charge you a higher rate of interest. And a low business credit score may impact on your ability to obtain credit from suppliers.
The credit bureaus calculate a business credit score based on a range of factors. Those factors include your payment history, credit utilization, and if any of your debts have been passed to collection agencies.
Maintaining a high credit score will save you money in the long-term. If your credit rating is above average, you will get better terms on loans and with suppliers. Here are ten tips that will help you improve your business credit rating.
1. Monitor Your Credit Report
The credit bureaus do make mistakes, and errors in your credit report could significantly lower your credit rating. It is advisable to review your business credit report at least once a year. If you find any errors or omissions, contact the relevant credit agency, and ask them to correct their records. A regular check of your credit report will also allow you to spot any fraudulent transactions that may have been made in the name of your business.
2. Pay Bills on Time
Avoid paying bills late whenever you can, because late payment is a significant factor in your business credit score. Be particularly careful about paying utility companies and large vendors on time, because these organizations are more likely to file reports with the credit bureaus. Paying your bills on time will also build goodwill with suppliers, and you may be able to collect early settlement discounts.
3. Avoid Maxing Out Business Credit Cards
Your credit utilization is another crucial credit rating factor. So, avoid overloading your business credit cards. If possible, pay off credit balances every month, and try to keep the balance of cards at 15% of the credit limit. If your credit card limit is not high enough, it would be beneficial to ask the credit card company to increase your limit. Or you could pay the balance on the account more than once a month to keep your credit utilization low.
4. Avoid Applying for Unnecessary Loans
Your total exposure to debt will affect your credit rating. Making an application for new credit will lower your credit score, even if you do not take out the loan, so only apply for credit cards or loans when you need to.
5. Open Lines of Credit When the Need is Identified
When you do have a genuine need for credit, it is better to open a line of credit sooner rather than later. Applying for and accepting a loan will temporarily lower your credit score. But if you then maintain that account well, your credit score will rise again. If you later find that you don’t need the credit facility, you will have lowered your credit utilization percentage. Taking out credit before you are in desperate need of it will also help you get better terms and manage your cash flow better.
6. Open Credit Accounts with Vendors
One of the best ways to improve your business credit score is to have a proven track record of handling debt well. So if you use a vendor regularly, ask for a credit account because it will be one more positive account on your credit file. However, you will, of course, need to make sure that you make all your supplier payments on time.
7. Deal with Supplier Disputes Promptly
If you are in dispute with a vendor, try not to allow the conflict to escalate to where the supplier appoints a collection agency. If a debt is passed to collections, it will be reported to the credit bureaus. Even if you cannot pay an outstanding supplier invoice, talk to the vendor, and try to agree on a payment plan. If you cooperate with a vendor, they may not report the issue to the credit agencies at all.
8. Don’t Close Old Credit Accounts
It is usually best not to close off old credit accounts, even if you do not need the facility anymore. Both your credit history and your credit utilization affect your credit rating. Leaving old repaid accounts open will show potential lenders that you can manage debt well, and it will lower your credit utilization.
9. Update Your Credit File Manually
It is possible to add trade references to your credit file manually. Updating your file can improve your business credit score because not all companies report payment history to the credit bureaus. To do this, you will need to create an account with the credit agency and then update your credit file online.
10. Pay for the Deletion of Collections
If an amount you owe does get passed to collections, it will be worth your while paying to have that debit deleted from your credit report when you do pay the bill. When you pay the collections agency, you will usually have an option to pay to have the record deleted from your credit file. You may have to request deletion before you pay the agency. If you do not get the collection record deleted, it will remain on your credit history as a negative payment and adversely affect your credit score.
Managing your business credit score is very much the same as taking care of your personal credit rating. It would be best if you monitor your business credit report and report any errors promptly. You need to keep credit card balances low and pay your suppliers on time. If you follow the above tips, you should find it easier to get credit when you need it, and you will likely get better credit terms.