How to Improve Your Business Credit Score6 min read

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Executive Summary

If you look after your business credit score, it will look after you. Here are a few key tips to get started on making it the best it can be.

If you look after your business credit score, it will look after you. Here are a few key tips to get started on making it the best it can be.

A business credit score is just like your personal credit score, and, similarly, it should be something you take care of to improve the financial health of your enterprise. From the amount of credit that suppliers will allocate to you, to your ability to secure loans in general, to the interest rates you will pay on said loans, your business credit score can make or break many of your financing efforts.

You may be wondering why your business credit score is a deciding factor for so many different financial mechanisms. It’s because a strong credit score paints a portrait of a responsible and reliable person who is likely to pay bills and loans back on time. Lenders set rates and terms based on business credit scores, so it’s definitely in your best interest to maintain a healthy one.

It can all feel a bit daunting, though. So if you’re a small company owner in the US, the simple act of finding a way to keep track of your business credit score is an excellent place to start. Here are a few key tips to get started on making your business credit score the best it can be.

 

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Tip 1: Check your business (and personal) credit

Peeling back the curtain is a crucial first step. You can pay to obtain your business credit score from credit reporting companies such as Equifax, Experian, and TransUnion, which are the three major credit agencies in the US. Once they produce your report, you’ll be able to determine what you need to do next to raise it and make your score work for you.

Regularly requesting a business credit report will also help you stay on top of things and keep an eye out for any discrepancies. Some agencies have tools to help you monitor your credit position in real-time, allowing you to react accordingly to any changes as they happen.

 

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Tip 2: Establish your business credit

Keep in mind that credit agencies cannot establish your business credit for you. To do it, you’ll need to work with vendors that report your payment history to the agencies. A positive payment relationship with your vendors reflects well on your business credit score. The more positive payment experiences you have on file, the better.

Vendors can include suppliers, wholesalers, manufacturers’ banks, leasing companies, and other financial institutions. However, they are not required to report to credit bureaus. So you may have to be choosy and open accounts with vendors that do report this in order to maximize your chances of bolstering your credit score. 

 

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Tip 3: Apply for a business credit card

Not only is having a business credit card a great way to keep personal and business expenses separate, but showing the bank you’re a responsible credit card user helps your credit history dramatically. Be sure to keep your credit utilization ratio low (below 15% is recommended) and make sure your payments are timely. Increasing your credit limit but not spending it all also increases confidence in you as a borrower. This reflects via your credit score, pushing it upward.

However, be careful about making too many credit account applications. Businesses that apply for multiple credit cards in a short amount of time may seem like they’re struggling to secure funding, which in turn impacts their scores. Asking for quotes instead of applying is a safer alternative.

 

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Tip 4: Pay your vendors and bills early

Paying early is better for your score than paying on time if you have the financial capacity to do so. According to industry stakeholders, paying your vendors and bills early can push payment history scores even higher than they would be if you were merely paying on time. On the Dun & Bradstreet PAYDEX score, paying on time can get you a score of 80, but paying early could get you to 100.

Whatever you do, avoid paying late at all costs. Late payments could indicate that your business has financial problems and therefore damage your score.

 

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Tip 5: Use your business credit to manage your cash flow

Business credit cards can offer many benefits, including interest-free periods and rewards. Taking advantage of the interest-free grace period can really help get your business in order without breaking the bank. But make sure to pay your bills on time (or early!) to keep your credit score in pristine shape. Setting goals will also help you keep to a disciplined credit control process, and in turn, manage your cash flow successfully.

 

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Tip 6: Monitor your business credit reports

It may sound like a tedious process, but carefully going through your company’s credit reports is essential to ensure there aren’t any discrepancies. Errors in your credit file can harm your overall score, and it may even be something that isn’t your fault. If you’ve spotted an inaccuracy, you should notify the credit agency that generated the report and follow up to get it resolved.

Incorrect information that’s negative on your business credit report could result in you paying higher insurance premiums, getting charged higher rates for financing, getting rejected when applying for new loans, or even having a difficult time securing leases.

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Tip 7: Keep an eye on your personal finances

Don’t drop the ball when it comes to your personal finances! Make sure they’re in good health and that your personal credit score is in good standing, especially if your business doesn’t have much financial information available yet. Credit agencies may use the entrepreneur’s personal finances as a key indicator when arriving at a business credit score.

Now that you’ve armed yourself with this essential information, you’re well on your way to giving your small business a big boost. If you look after your business credit score, it will look after you.

 

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