As well as loyal customers, money is the thing that makes all businesses turn over. So, as a business owner, you know that your credit score is important – it’s the number that will help you scale up your operations, and support your success. A good business credit score can help you get approved for loans and lines of credit, get lower interest rates, and even lease office or retail space. It can also relieve you of having to personally guarantee loans made to your business.
You may know your personal credit score, which is often used by lenders when applying for business financing. But you also want to develop your business credit score. Unlike a personal credit score, which is a flat number, a business credit report is more complicated than a single number…even though it’s often referred to as a business credit score. This important report is calculated using a variety of factors:
- Payment history. The most important factor, this looks at whether you've made your payments on time in the past.
- Age of your company. How many years the company has been in business, and how long your accounts have been open.
- The type of industry you’re in. Some industries are considered riskier than others.
- Any existing debt.
So, as you can see, there are a few different things that go into your report. But how can you improve your credit report? Keep reading for five tips.
1. Pay bills on time
This one is a no-brainer. Anyone running a credit check on your business will want to know whether or not you’re a safe bet to money lend to or do business with, so paying bills on time is essential if you want to improve your report. Set up automatic payments if necessary to make sure your bills are always paid by the due date, or early.
If you are struggling to meet your bills for any reason, make sure you talk to providers first, rather than missing payments.
2. Keep balances low
Another factor that impacts your business credit score is your credit utilization ratio, which is the percentage of available credit that you're using at any given time. Lenders ideally like to see a ratio of 30% or less for businesses, so try to keep balances owed at 30% or below of your total available credit limit.
However, this doesn’t mean that you should keep your credit cards for emergencies – using them slowly and responsibly can demonstrate to lenders that you are in control of your finances.
3. Diversify your credit mix
Types of credit also affect your business credit score. A mix of installment loans (like business mortgages or company car loans) and revolving lines of credit (e.g., business credit cards) is best. If you only have revolving lines of credit, try applying for an installment loan to diversify your mix.
4. Know what's being reported
It’s important to monitor what information is being reported about your business by the major business credit reporting agencies. You can request a free report from several agencies. Review the reports carefully to make sure all the information is accurate; if there are any errors, dispute them immediately.
5. Use a credit builder service
Finally, you may want to use a credit builder service, such as one offered by Dun & Bradstreet. This service enables you to have small vendors report your payments to the service in order to build a history of timely payments. Experian says that of the more than 500,000 suppliers extending credit, only about 10,000 report payments to them. There’s a cost for using a credit builder service, so decide whether it’s worth the investment for your business.
By following these five tips, you can improve your business credit score and get access to the financing your business needs to grow and succeed. Make sure to check your business report regularly, so you can be aware of any discrepancies before they become a problem.