Similar to a personal credit score, a business credit score serves as a financial report card that grades the creditworthiness of a business.
Having a strong business credit score is key to getting your company approved for financing and trade credit. This makes your credit record one of the most important factors when you’re trying to access financing to support and grow your business.
By taking a more proactive approach, you can influence your business’ credit profile to boost its credit score. Here are five top tips to help you improve your business credit score:
1. Pay on time. Your business credit score is mostly affected by the payment experience other companies have with your business. Make sure you pay your debts within the deadline set by your suppliers or financiers. Late payment will not only attract fines but will also impact your score negatively if the creditor reports you.
2. Ensure suppliers and lenders report trade experiences. Check your credit profile at least twice a year to ensure that all your key lenders and suppliers are reporting your payment behaviour. If they don’t, your efforts will go unrewarded as their experiences will not be included in the calculation of your credit score.
3. Monitor your credit profile. Keep an eye on your credit profile to ensure that all the data appearing there is accurate and up to date. False negative activity that has already been addressed, mistakes by creditors and banks, and accounts that don’t belong to you should be reported to the credit bureau so that the proper corrections can be made.
4. Keep personal finances in order. Although personal and business credit is separate and distinct, creditors may sometimes look at your personal credit for more information. This mostly happens when a business is just starting out or when it doesn’t have enough credit information available. Make sure that your personal credit is as well maintained as that of your business.
5. Avoid using credit. It sounds quite contradictory, I know, but using less credit than is available reflects better on your score. For example, if you have a $200,000 business line of credit but only use less than a third of it, your credit utilisation ratio will be low and hence improve your score.
Improving your business credit score is very important to your business as it enables your company to maximise its funding potential and access the most favourable terms possible.
Use Creditworks to remain informed, and thereby protect my business against potential bad payers, and ultimately minimise the risk of losing money via bad debts.