Have you ever applied for a loan whether for business or personal use? What are the requirements of the lender? They want to see your credit score, right? Lenders, banks, and financial institutions rely heavily on credit scores to determine the viability of the business. They also use the credit scores to gauge the ability of the business to pay off the business loans. But more than the banks and lenders, suppliers also look at the business credit score before offering terms and establishing lines of credit. In short, a good business credit score makes it easier for you to negotiate the terms of a business loan.
So what is a business credit score? It is similar to your personal credit score, which you take care of to be eligible for a loan. For personal credit scores, the rating ranges between 300 and 850 with most creditors requiring a minimum credit score of at least 600 to get approved for a personal loan. For a business loan, the credit score ranges between zero and 100 with lending companies and financers requiring a minimum score of 75.
To get to the score of 75 or even better than that, you have to be patient and practice diligence in your business finances. You have to be on top of things. Rather than doing miscellaneous things in hopes of improving your business credit score, follow through with a step-by-step process that will keep your score afloat.
Check Your Credit Report Regularly
Credit reporting agencies offer you free access to your business credit report. They usually do this for the first inquiry before charging you for the next ones. But whether or not you have to pay for the report, you need to know where your business stands. This is the first important step in managing your credit score.
Once you have the report in your hand, you will have an idea of which accounts are pulling down your credit score. You can deal with the issues better once you see how they affect your business’ credit standing. You should also look closely at the items you can dispute that will boost the business credit score.
Do you know that many business owners are not aware of their company’s credit score? This can be detrimental to your business. You can dispute the inaccuracies in the report and give your company’s credit score the boost it needs.
Pay Your Creditors on Time
One factor that lowers your company’s credit standing is late payment. Lenders will see you as a risk because you cannot pay your creditors and suppliers on time. They will not want to trust your company because doing so means they’re risking their money on you. How can you avoid late payments? First, you have to set aside money for your monthly dues. And second, you need to set a reminder when to pay these dues. Paying your bills on or before the due date will improve your business credit score.
It is easier said than done, of course. The technique most businesses use is to prioritize the payables every month. Pay your employees and your creditors first. Once that is finished, that’s only the time you can “reward” yourself with a salary. This is especially true for startups that have yet to earn a return on investment.
Stop Applying for Business Credit Cards and Loans
You have to keep your debts low. Applying for business credit cards and loans too often will show that your business may have more debts than profit. The fewer obligations you have, the more likely it is that banks and lenders will trust that you can take on new debt. That will push them to approve your loans.
The only reason you must open a new line of credit is to increase your credit utilization ratio. This refers to the ratio of the credit you use with the amount of credit available. As a general rule, you have to keep the credit utilization ratio at 15%. You can open a new business credit card or credit line that you will not use to improve the available credit amount.
There are more ways to improve your business credit score, but the most essentials are these three. Keep your eye on your business credit score because failing to do so can hurt the chances of expanding your business in the future. Be mindful of the activities you do that can hurt your company’s credit standing. Remember that a healthy business credit score prepares your company for the future.