What are the credit score facts that help your business increase its credit rating? Just as cash flow is important, maintaining a good credit score is also vital as it relates to the success of your company. But not all start-up business owners realize its importance until they find themselves facing issues because of it.
In fact, a higher score means it will be easier for you to attract investors, partners, and most importantly, get approval for business term loans. Subsequently, there’s no question why every small business owner should maintain or strive to get a higher credit score.
Whether it’s for additional working capital or to pay off current business loans, businesses will eventually need to apply for additional financing. Unfortunately, many are denied because of bad business credit. If they do get approved, there’s a high likelihood they’ll receive loan terms with high-interest rates and less than favorable repayment terms.
The good news is, you can do something about your credit score to make sure that you’ll never have to miss out on another big opportunity in the future. Check out the following six tips on how you can improve your business credit rating:
Credit Score Fact #1: Pay Your Bills Before or on the Due Date
Late payments are the most significant factors that can lead to a low credit rating. Entrepreneurs can easily get caught up in their day-to-day lives, resulting in them forgetting that a payment is due.
If your creditor decides to report you, your payment inconsistencies could cause a huge dent in your credit report. Late payments will not only reflect poorly on your credit report, but it can ruin your relationship with suppliers and lenders, too.
It’s always best you be responsible and pay your dues on time. Also, try and establish a sound payment system that will help you to remember the due dates of your payables each month.
#2: Utilize Your Credit Lines Responsibly
Your business credit history is what your credit rating will be based on. The easiest way to build a stable one for your business is to apply for a business credit card. It’s much easier to get approval for a credit card than for other traditional financing options. With your credit card, you can lay all the groundwork for your credit history.
However, although it’s the easiest way to establish your history, you also have to be careful about your spending. Try your best not to max out your credit cards or other credit lines. As much as possible, limit your spending to no more than 30% of your limit.
#3: Keep Your Credit Report Updated
When you’re trying to build or boost your business’ credit score, it’s always important to take a close look at your credit report from time to time. This will let you know where you currently stand and determine the necessary steps you need to take to improve your score. You can quickly obtain yours by contacting one of the major credit bureaus in the country.
It’s also not uncommon for credit bureaus to make a mistake on the report, which could have affected your credit rating. Paid debts that aren’t reflected on your current report, for instance, can happen. Fortunately, this can be resolved easily. Simply call the credit bureau to resolve the issue.
#4: Don’t Close Unused Accounts
One of the most common mistakes that entrepreneurs do is closing an account that’s already been paid and removing it on the credit report. Although it can be tempting to cancel an account to avoid future spending and incurring more debt, doing so can affect your credit report negatively.
It can also limit the amount of credit at your disposal. So, as much as possible, best you keep your accounts open even if you’re not actively using them.
#5: Ask Lenders to Report Payments
Business financing goes a long way in building your credit score. However, some lenders or suppliers may not be so diligent in reporting payments back to the credit bureau. As a result, your credit report may reflect some inconsistencies which affect your credit score.
If you’re planning on taking out a business loan, make it a habit to ask lenders if they report to credit bureaus frequently. For your suppliers, try to ask them to report your payments to the credit bureau.
#6: Open New Accounts
If you’re a start-up business, chances are, you might only have a few accounts registered to your company. But when you’re trying to build up a credit history, having one or two more may help boost your credit score.
A line of credit is usually the option most businesses commonly apply for. You can also apply for small business loans, as well.
However, there’s a possibility your request for a loan might be rejected since your business is still in its early stages. Best to be sure you make timely payments so your credit won’t reflect badly on your credit score.
Business Term Loans and Credit Score
Building a good credit score is an excellent investment for your business’ future. When you decide to take out a business term loan in the future, one of the things that lenders will look at is your credit score.
The higher your credit score is, the more financially responsible you’ll look in the eyes of lenders. You’ll also have a higher chance of getting your loan application approved. So, be sure you take the necessary steps needed following these credit score facts recommended to protect and improve your business credit score.