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Key Points:
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A higher credit score could prop open a lot of doors for your business.
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Your business credit score reflects its creditworthiness.
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With that in mind, here are seven ways to increase your business credit score.
If one of your business goals in 2024 is to increase its credit score, you're in the right place. A higher credit score could open a lot of doors for your business, and opportunities for financing you wouldn't get otherwise. With that in mind, here are seven ways to increase your business credit score.
Understanding Business Credit Score Basics
Your business credit score reflects its creditworthiness. Before we dive into how to improve your business credit score, it's helpful to familiarize yourself with the factors influencing it.
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Factors that Influence Your Business Credit Score
Understanding these factors will help you focus on areas that need the most attention. For instance, if you have a history of late payments or high credit utilization, those are the areas you'll want to work on first.
Payment History
Your payment history is one of the most crucial factors in determining your business credit score. Late payments can significantly negatively impact your credit score, so paying your bills when they're due is advantageous. If you have a history of late payments, do your best to start making on-time payments going forward.
Credit Utilization Ratio
This ratio is the amount of credit you use versus your available credit limit. A high credit utilization ratio can lower your business credit score as it may indicate your business is highly reliant on credit and may be at risk of defaulting. A credit utilization ratio under 30% is the general recommendation for companies and individuals.
Credit History Length
How long has your business been open? If it's only had a few months to establish a credit score, it may not have a long enough credit history to support a high score. Building a longer credit history takes time and consistent use of credit responsibly.
A more extended credit history demonstrates that your business has a track record of managing its finances responsibly, positively impacting your credit score. If you're just starting, establishing a solid credit history may take some time.
But don't give up! Consistently making on-time credit payments and keeping a low credit utilization ratio can help build your credit over time.
Other Factors
Along with payment history, credit utilization ratio, and credit history length, other factors that may influence your business credit score include:
- Types of Credit: A diverse mix of credit accounts (e.g., loans, lines of credit, etc.) can demonstrate your business's ability to manage different types of credit, positively impacting your score.
- Public Records: Things like bankruptcies, tax liens, and other publicized records can significantly impact your business credit score.
- Inquiries: When you apply for credit, lenders often check your credit report, resulting in a hard inquiry. Numerous hard inquiries in a short time frame might lower your credit score.
- Industry Risk: Some industries are considered higher risk by lenders, so businesses in these industries may have lower credit scores. Understand how lenders perceive your industry and take steps to mitigate any potential risks.
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7 Steps to Boost Your Business Credit Score
Now that you understand some of the factors that influence your business credit score, here are seven steps you can take to improve it:
1. Monitor Your Credit Report Regularly
Like personal credit scores, monitoring your business credit report regularly is beneficial. This can allow you to catch any errors or fraudulent activity that may hurt your score. By staying on top of your credit report, you can dispute any incorrect information and ensure your score is an accurate reflection of your business's creditworthiness, too.
2. Pay Bills on Time
It's worth mentioning again because of how important timely bill payments are regarding credit scores. If your business is struggling to make payments on time, consider setting up automatic payments or regular reminders so you don't miss any payment deadlines.
Don't miss this article next: The Power of a Good Credit Score: Better Financial Products Are Possible.
3. Manage Credit Utilization Ratio
We also mentioned that your credit utilization ratio (AKA the amount of available credit you are using) can impact your business credit score. Do your best to keep this ratio low and avoid maxing out your credit lines. This demonstrates to lenders that you are not solely reliant on credit.
4. Consolidate Debt Smartly
Consider consolidating high-interest debts into a lone, manageable debt consolidation loan. This can streamline payments and potentially improve your credit score over time.
Here are some strategies for consolidating credit card debt: Best Ways to Consolidate Credit Card Debt.
5. Communicate with Creditors
If you encounter financial challenges, tell your creditors proactively—don't wait for them to come to you. Negotiate payment plans or settlements to avoid defaults that could harm your credit score.
6. Settle Overdrafts ASAP
Overdrafts can also affect your credit score negatively if left unresolved. Address any overdrafts promptly to mitigate their impact on your business credit rating.
Conclusion: How to Improve Your Business Credit Score
Improving your business credit score requires diligence and proactive financial management—but you can do this! Work through these strategies to establish and maintain a strong business credit score.
Remember to keep up with the Lendstart blog to stay informed about the latest financial best practices, debt consolidation options available to you, and other important financial topics.
FAQ
Can overdrafts affect credit score?
Yes, unresolved overdrafts can negatively impact your business credit score, so it's smart to address them promptly. If you have multiple overdrafts, consider consolidating debt to improve credit score through a loan to avoid any further damage to your credit score.
How often should I review my business credit report?
Reviewing your business credit report at least once a year, ideally every six months is recommended. This will allow you to spot any errors or discrepancies and address them promptly before they negatively impact your credit score.
How long does it take to improve a business credit score?
This might require some patience—the time it takes to improve a business credit score can vary depending on the current state of your credit and how diligently you work towards improving it. However, with consistent financial management and responsible borrowing, you can usually see improvements in your business credit score within 6-12 months.
How can I improve my credit utilization ratio?
Utilize only a portion of your available credit: Instead of maxing out your credit cards, try to keep your credit utilization below a certain threshold (such as 30%, as we mentioned) of your total available credit. Manage your credit responsibly: Make timely payments and avoid carrying balances on your credit cards when possible. Keeping a good payment history and holding your credit accounts in good standing goes a long way in improving your credit utilization ratio.
Why is paying bills on time important for my business credit score?
Making timely payments not only showcases the creditworthiness of your business but can also have a long-term positive effect on your credit score. You establish a reliable financial track record by consistently meeting payment obligations on time and building trust with lenders and creditors. This, in turn, might open doors to better financing opportunities and favorable terms in the future.
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Kelly is an accountant, college accounting and finance instructor, entrepreneur, and freelance finance and business writer. He has a Bachelor of Management, an MBA, and a CPA. In his free time, he enjoys endurance cycling, and his only claim to fame is that he once rode his bicycle across Canada – 7,000+ km over 64 days.
