Establishing a good credit profile for your business is something every business should aspire to have. A good business credit score is vital for a business’s health and longevity, especially for small businesses. Owners should establish a good credit score as soon as possible to maintain operations. Not only that but with a good credit score, you can acquire funds to grow and develop your business.
Some people often say that their businesses are small, so having extra funds isn’t needed. However, even if you’re holding a business inside your garage, chances are you’re going to borrow money sooner or later, so establishing a good credit score is a must. But what if you already got a credit score, but it’s currently on the rocks? Well, that’s probably why you’re reading this article.
Here are some tips you need to improve your business’ credit score.
Study Your Credit Score
If you don’t know how your business’ credit score is calculated, it’s going to be hard to determine where you went wrong along the way. That said, interpreting your credit score is a must.
The first thing you should know about business credit scores is that they’re calculated differently. Like Experian, Equifax, and TransUnion, national credit bureaus use an entirely different method to calculate a business’ credit score than banks.
One example of this is Experian. Experian uses a FICO 8 score while banks use a FICO 5 score. FICO 8 uses a scale of creditworthiness from 300 to 850, while FICO 5 uses a scale from 334 to 818. Typically, most lenders want to see a FICO score above 680, which is a good sign of being reliable when repaying.
Pay Bills on Time
Being bad with repaying your loans is not only bad for your credit score, but for your business credit profile as well. Late payments will damage your credit score, which is not a good sign for lenders. Not only that, but it will also leave a dent in your credit history, especially if your lender chooses to report you.
Paying on time with your loans will start a good habit and improve your business credit score over time. Not only that, but it can also make a good impression on your lenders. And who knows, they might give you a great offer that you can’t refuse in the future.
Decrease Your Credit Utilization Ratio
One of the first things that lenders will look at in your credit report is your credit utilization ratio. If you don’t know what credit utilization ratio is, it’s the ratio related to how much credit you are using concerning your balance. In simpler terms, it’s how much credit you use in your balance.
Typically, lenders like to see less than 15%. If you see your credit score with a credit utilization ratio that’s above 15%, there are some ways you can deal with that. The first most obvious thing is to pay your balance, of course. If you can’t pay them entirely, at least pay an amount that will significantly impact your credit utilization.
One thing you can also do is ask your lender to increase your limit; easy as that. However, don’t rely on this too much since some lenders don’t allow the credit limit to be touched. Or, you can also lessen your spendings.
One last thing you can do is to open a new credit line. While it may seem bad advice, since you’ll be open to more debt, it’s an effective method to increase your credit availability, decreasing your credit utilization rate.
Don’t Close Accounts
When done paying a credit account, most people tend to close them off and remove them from their credit history. While it may seem an excellent decision to curb future spending, it’s ill-informed to do so.
Yes, paying down the account will improve your credit score by 8 points, which is a good thing in general. However, if you close the account, it could hurt your credit score by 20 points. Not only that, but it would also decrease your credit availability and, in turn, increase your credit utilization ratio.
Correct Mistakes in Your Credit Report
If you check your business’ credit score and see mistakes, it’s an excellent decision to address them immediately. Mistakes such as the wrong address or wrong spelling will inadvertently dent your business credit rating.
To fix these errors, you can work with credit card companies or credit reporting agencies. It’s essential for your business credit rating to have clean and correct information to avoid future errors.
Having a good business credit score is a must for small and big businesses alike. Establishing this as soon as possible will make you acquire funds sooner for its development. However, if you already have a business credit score but it’s not that good, there are some things you can do about that matter. It’s only a matter of time and dedication.
Businessman Checking Credit Score -DepositPhotos