Most people know that they have a personal credit score. If you’re a business owner, you also have a business credit score, which tells creditors and lenders whether it’s a good idea to extend your financing.
A business credit score considers many of the same factors as a FICO score, such as payment history, credit utilization ratio, and public records like bankruptcies and judgments. Company size and age, as well as industry risk factors, are also measured.
If you own a new business or have some delinquent payments in your past, your business credit score might not be high enough to qualify you for the best business credit cards, or the most affordable small business loans. Lots of small businesses use debt financing to responsibly grow their business without selling off equity or cutting corners.
Here are seven steps you can take to improve your business credit score and receive better terms from lenders:
Start paying your bills on time
This is perhaps the most obvious and easiest step you can take. Always pay your bills on time, from your credit cards to your rent and utilities to your suppliers. Not paying your bills demonstrates that you are a debt risk.
Dispute inquiries and errors
When checking your credit report, you might find that your history is inaccurate such as a false delinquent payment or false hard pull. You can, and should, dispute false information on your report to get them removed from your record.
Lower your credit utilization ratio
Your credit utilization ratio is the amount of credit you’ve used relative to the total amount available to you. The less of your total credit that you use, the better you look to creditors. They don’t want to lend to someone who has already maxed out what others have given them.
To improve your ratio, you can pay off your outstanding debt, increase your credit limit (try asking your credit card provider), pay your bills often, and open new lines of credit.
Establish credit accounts with suppliers
If you have a good relationship with your business’s suppliers, ask if you can create a credit account with them—receiving your inventory first and paying them later. Adding another credit account with positive payment history is an excellent way to boost your score.
Manually add positive payment experiences to your file
Once you establish that credit account with a supplier or vendor, you might find that they don’t share client payment data with business credit-reporting agencies like Dun & Bradstreet, rendering your account moot (in regard to credit scores, at least). You can, however, manually add your credit account with a supplier through the credit-reporting agency.
Offer to “pay for delete” with collections agencies
Perhaps early on in your business’s history, you had a debt that went to collections. It happens, whether due to uneven cash flow that prevented you from making on-time payments, or poor bookkeeping. Now that you’ve righted the ship, it’s time to wipe the slate clean.
You can ask the agency to delete the negative account from your credit report when you pay off the debt you owe. Not all agencies will do this, but it’s worth asking.
Stay in business
Here’s a win-win method of improving your score: The longer you’re in business, the better your business credit score will be. Continue your good credit practices and keep your business going, and your score should rise over time.
Bio: Eric Goldschein is the partnerships editor at Fundera, a marketplace for small business financial solutions. Eric has nearly a decade of experience in digital media and writes extensively on finance, marketing, entrepreneurship, and small business trends.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.