How to Improve Your Credit Score as a Small Business Owner
As a small business owner, you know how important it is to manage your finances well. But did you know that your business also has a credit score that can affect your ability to get loans, credit cards, and other financial products? In this post, we’ll explain what a business credit score is, why it matters, and how you can improve it.
What is a business credit score?
A business credit score is a number that reflects how creditworthy your business is. It is based on various factors, such as your payment history, credit utilization, debt level, business age, and industry risk. Four main business credit bureaus calculate and report business credit scores: Experian, Equifax, CIBIL, and CRIF. Each bureau has its own scoring model and range, but generally, a higher score means a lower risk of default.
Why does your business credit score matter?
Your business credit score matters because it can influence your ability to access financing and grow your business. A good business credit score can help you:
- Qualify for loans, credit cards, and lines of credit with lower interest rates and fees
- Negotiate better terms and discounts with suppliers and vendors
- Attract new customers and partners who may check your creditworthiness
- Protect your personal credit score by separating your business and personal finances
How can you improve your business credit score?
Improving your business credit score is not a one-time fix, but a long-term process that requires consistent and responsible financial behavior. Here are some tips to help you boost your business credit score:
- Pay your bills on time. This is the most important factor in your business credit score, as it shows your ability and willingness to repay your debts. A negative record of paying on time can indicate a poor cash position and damage your credit reputation. Try to pay your bills before or by the due date, and avoid late payments, delinquencies, and collections.
- Limit your credit usage and keep debt low. Another key factor in your business credit score is your credit utilization ratio, which is the percentage of your available credit that you use. A high credit utilization ratio can signal that you are overextended and may have trouble paying back your debts. Aim to keep your credit utilization ratio below 30%, and pay off your balances in full whenever possible.
- Regularly check your business credit report and correct any errors. You can get a free copy of your business credit report from each of the three bureaus once a year. Review your report carefully and look for any inaccuracies, such as incorrect or outdated information, duplicate accounts, or fraudulent activity. If you find any errors, dispute them with the bureau and provide supporting documentation to get them resolved.
- Establish a diverse and long credit history. Having a variety of credit accounts, such as loans, credit cards, and trade lines, can show that you can handle different types of credit responsibly. Having a longer credit history can also demonstrate your stability and reliability as a borrower. However, don’t open too many accounts at once, as this can lower your average account age and hurt your score. Only apply for credit when you need it and can afford it.
- Build relationships with your creditors and suppliers. Communicating and cooperating with your creditors and suppliers can help you maintain a good credit standing and avoid potential problems. For example, you can ask for a higher credit limit, a lower interest rate, or a longer payment term if you have a good payment history. You can also ask your suppliers and vendors to report your positive payment behavior to the credit bureaus, as this can boost your score.
Your business credit score is a valuable asset that can help you grow your business and achieve your goals. By following these tips, you can improve your business credit score and enjoy the benefits of having a strong credit profile. Remember, improving your business credit score takes time and effort, but it is well worth it in the long run.