How to Improve Business Credit Score for a Small Business


Important to improve business credit

It is imperative to have strong business credit scores and ratings if you are looking to acquire loan and credit to finance your small business. Just like how personal credit scores serve as a financial report card, your business credit is taken into consideration to grade your business’s creditworthiness. If your business does not already have a good credit history, it is important that you immediately find ways to improve the business credit score of your small business.

Nearly forty-five percent of businesses that get a negative reply or are turned down from creditors are owing to their bad credit scores.

As per the Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia, forty-five percent of small-business borrowers who get a “no” from creditors or are turned down is because of their bad credit scores.

Moreover, borrowers with poor credit normally have higher interest rates, unimpressive payment terms with suppliers and higher insurance premiums. If you have ever been turned down for business loans, it must be because of your bad business credit. It is the time to take control and improve the business credit score of your business.

While we have already told you once before how you can build your business credit, listed below are five more ways to improve your ratings and business credit scores.

 

Keep Your Credit Usage Low

One of the biggest factors that affect your credit score is the amount of money you owe to banks and other creditors. The debt-to-equity ratio is one of the common metrics used to measure a business’s financial leverage in comparison to the amount of credit that is currently being used.

Another metric used to evaluate a company’s credit score is “credit utilization.” This deals only with available credit in comparison to the debt. Since high ratio corresponds with a low credit score, make sure that you keep credit utilization below 30%.

 

Make Payments on Time or Earlier

Even though each credit bureau uses different methods to evaluate a business’s credit score, all of them take into account your history of payback to creditors. In order to ensure a good score, make your payments on or before the due date. In fact, Dun & Bradstreet are so particular that they assign perfect scores to only those who pay before the date.

Another factor for assessing your credit score is credit utilization. Even though you might use your cards and lines of credit, make sure you do not use your complete credit limit. Limit your spending to 20% to 30% of your credit limit.

 

Keep Information Current with all Credit Bureaus; Review Your Credit Score

Several credit bureaus, including Experian, Equifax, Dun & Bradstreet collect data to create business credit scores. While personal credit scores follow the standards set by Fair Isaac Corp, business credit bureau follow a different pattern to calculate the credit score.

Since we will never know which credit bureau your creditors, potential customers and vendors will check, it is advised to maintain all three. Check the business credit score guide for more information on how you can monitor your score.

Joseph Schmidt, senior vice president in the Small Business Lending division at Wells Fargo, advises small business owners to pull their commercial credit bureau report and business credit score from all the three top credit agencies (Experian, Equifax, and Dun & Bradstreet) before deciding to apply for credit.

 

Do not Close Accounts

Even if you are tempted to close one or more of your credit accounts after having paid it off in full, do not do so.
Closing these accounts is likely to affect your business credit rating. In fact, it is quite possible that this might limit the amount of credit that you could possibly have used.

 

Do Not Hint at any Risk

Out of the many ways to improve business credit rating is to avoid any type of risk that might come up. Any financial activity that is likely to push your creditors and card issuers away must be avoided. You must not at any point involve yourself or your business in any activities that suggests that you might be under any sort of financial stress.

 

Conclusion

While there are endless ways one can improve business credit score, the five points mentioned above along with what we revealed earlier will certainly help a lot.

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