As a business owner, having a good credit score is essential to your success. It allows you to secure financing, get better rates on loans, and establish your reputation in the industry. However, building a solid credit history is not always easy, especially if you are just starting. In this article, we will go over eight ways to improve your business credit score and set your company up for financial success.
1. Understanding Business Credit Scores
Your business credit score is a number that indicates your company’s creditworthiness. It ranges from 0 to 100 and is based on several factors, including your payment history, credit utilization, and length of credit history. The higher your score, the more likely you are to be approved for financing, get better rates, and secure more favorable terms.
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In order to understand how to improve your business credit score, you need to first understand how it is calculated. Dun & Bradstreet, Experian, and Equifax are the three major credit bureaus that provide business credit reports. Each bureau has its own scoring model, so your score may differ depending on which bureau’s report you are looking at. However, all models generally take into account the same factors, including payment history, credit utilization, length of credit history, public records, and industry risk.
2. Check Your Business Credit Report Regularly
Just like with personal credit, it is important to keep an eye on your business credit report regularly. You can get a free copy of your report from Dun & Bradstreet, Experian, and Equifax. Check for errors, outdated information, or fraudulent activity, and dispute any issues that you find.
It is not uncommon for errors to appear on credit reports, so it is important to review them carefully. Mistakes can range from incorrect payment histories to inaccuracies in your company’s information. By monitoring your report, you can catch and correct these errors before they negatively impact your credit score.
3. Pay Your Bills on Time
One of the most important factors in your business credit score is your payment history. Late payments can have a significant impact on your score, so it is crucial to pay your bills on time. Set up automatic payments or reminders to help you stay on track.
Paying your bills on time shows creditors that you are a responsible borrower who can be trusted to repay debts on time. Late payments, on the other hand, indicate that you may not be able to manage your finances effectively. If you are struggling to pay your bills on time, consider contacting your creditors to negotiate a payment plan or deferment.
4. Reduce Your Debt
Your credit utilization, or the amount of credit you are using compared to your total available credit, is another important factor in your business credit score. High utilization can indicate that you are relying too much on credit, which can be a red flag for lenders. Try to keep your credit utilization below 30% and pay down your balances as much as possible.
Reducing your debt can be challenging, especially if you have high balances on multiple accounts. One strategy is to focus on paying off accounts with the highest interest rates first, as this can save you money on interest charges over time. Another approach is to consolidate your debts onto a single account with a lower
interest rate, which can help you pay down your balances faster and save you money on interest charges.
5. Establish a Good Payment History
In addition to paying your bills on time, it is important to establish a good payment history with your creditors. This means paying more than the minimum due, paying off your balances in full, and avoiding late payments. A strong payment history can help boost your credit score and establish your reputation as a reliable borrower.
Establishing a good payment history takes time and consistency. It may be tempting to only make minimum payments, especially if you are struggling to make ends meet. However, this can actually hurt your credit score in the long run. By paying more than the minimum due and paying off your balances in full whenever possible, you can show lenders that you are committed to repaying your debts and managing your finances responsibly.
6. Open Business Credit Accounts
Having multiple business credit accounts can help diversify your credit profile and show lenders that you have experience managing credit. Look for credit cards, lines of credit, or loans that are specifically designed for businesses, and make sure to use them responsibly.
Opening multiple credit accounts can be beneficial for your credit score, but it is important to use them responsibly. Avoid applying for too much credit at once, as this can hurt your score. Instead, focus on opening accounts gradually and using them to make small purchases that you can pay off in full each month.
7. Keep Your Personal Credit Separate
It is important to keep your personal and business finances separate. This means opening a business bank account, obtaining a separate credit card, and avoiding using personal funds to finance your business expenses. By keeping your personal credit history separate, you can protect your personal credit score and avoid damaging it if your business experiences financial difficulties.
Using personal funds to finance your business expenses can also make it difficult to track your business finances and separate business expenses from personal expenses. This can make it challenging to file taxes and manage your finances effectively. By keeping your personal and business finances separate, you can ensure that your business is financially sound and well-managed.
8. Work With Vendors Who Report to Credit Bureaus
Working with vendors who report to credit bureaus can help you establish a credit history and improve your score. Ask your suppliers or vendors if they report payments to credit bureaus and make sure to pay your bills on time. This can help you build a positive credit history and establish relationships with companies that may be willing to extend credit to you in the future.
Not all vendors report payments to credit bureaus, so it is important to ask before entering into a business relationship. If a vendor does not report payments, you can still ask them to provide trade references that you can use to establish your credit history.
Improving your business credit score takes time and effort, but it is essential for your financial success. By understanding your credit score, checking your report regularly, paying your bills on time, reducing your debt, establishing a good payment history, opening business credit accounts, keeping your personal credit separate, and working with vendors who report to credit bureaus, you can set your company up for financial success and establish your reputation as a reliable borrower.
FAQs
- What is a good business credit score? A good business credit score is generally considered to be a score of 80 or higher. However, the specific range of scores can vary depending on the credit bureau.
- How often should I check my business credit report? You should check your business credit report at least once a year, but it is recommended to check it every six months.
- Can I improve my business credit score quickly? Improving your business credit score takes time and consistent effort. There is no quick fix, but by following the tips outlined in this article, you can gradually improve your score over time.
- Can I use my personal credit to finance my business? While it is possible to use personal credit to finance your business, it is not recommended. By keeping your personal and business finances separate, you can protect your personal credit score and avoid damaging it if your business experiences financial difficulties.
- What should I do if I find errors on my business credit report? If you find errors on your business credit report, you should dispute them with the credit bureau as soon as possible. Providing evidence to support your dispute can help you get the error corrected quickly and prevent it from negatively impacting your credit score.
