There is more to your company’s credit score than just a number. It may have a significant impact on how well your company does. Lenders, suppliers, and other creditors can rapidly determine if a business will pay its obligations on time by looking at its credit score.
Your business’s credit score is based on several characteristics that lenders and credit referencing agencies (CRAs) consider, including your business’ trading history, payment history, number of prior credit applications, and more.
What is a Credit Score and Why is it Important?
Since many years ago, credit scores have played a significant role in the expansion of corporate developments. However, several firms first developed credit reports in the late 19th century. Therefore, when evaluating your credit application, a strong credit score will always be valued.
That credit score contains important information about your company that applies to lenders, banks, suppliers, and investors. It displays your business’s credit score history and creditworthiness and aids lenders and suppliers in making defensible judgments regarding your company’s ability to pay back debts. Good business credit is one of the greatest things you can have as a business owner.
A strong business score also gives you more clout when negotiating insurance rates with vendors and landlords or negotiating payment terms. Take the following actions to build business credit in your company’s name if you don’t already have one:
- To ensure that your company is considered a distinct legal entity, incorporate or create an LLC (Limited Liability Company).
- Get an Employer Identification Number from the government.
- Open a new business bank account for your business with your true business name.
- Create a dedicated business line in your company’s name and make sure it’s listed.
Strategies to Improve Your Credit Score
Although there isn’t a surefire way to raise your company’s credit score, several tactics can be useful. Try these five strategies if you want to improve your business’s credit score:
Update Your Credit Score Information with Credit Bureaus
Dun & Bradstreet, Equifax, and Experian are the principal commercial credit bureaus that gather your credit data and generate your company credit ratings. Lenders and suppliers also submit credit information to various bureaus.
Thus all three have slightly different formulas for calculating corporate credit ratings. Because of this, updating your credit file with all three bureaus rather than just one is a wise move.
Start by looking at the policies for establishing or maintaining business credit on the websites of each credit bureau. Then, you can examine your file for faults and discrepancies, upload new financial statements, or check your credit report. Report any problems you see right away to the credit bureau. Improving your score requires maintaining a clear, accurate, and current credit file.
Make Prompt Payments
One of the simplest strategies to raise your credit score is to make prompt payments to lenders, merchants, utility providers, and landlords. Of course, you might need to adjust your cash flow to make your payments on time, but even a one- or two-day delay can improve your credit rating.
Keep a Check on Your Credit Rating
To prevent paying high-interest rates when applying for loans or credit cards, reviewing your company credit report can assist you in identifying inaccuracies and repairing any potential declines.
It’s crucial to remember that monitoring your credit score does not affect it. However, your credit score may be affected if you quickly request too many hard checks.
Here is a brief explanation of hard vs. soft credit checks to help you understand.
- Lenders and utility companies frequently run hard credit checks during the application process. They offer a thorough picture of your financial accountability.
- Soft credit checks are basic credit inquiries containing important data, including those conducted to pre-qualify applicants for credit or when you check your credit score.
Finding possibilities to raise your business credit score fast can also be made easier with your business credit rating knowledge. You should ask your suppliers to let them know about your excellent credit history.
Avoid Closing Your Credit Accounts
A common error business owners make is to close credit accounts and remove them from their credit reports. However, removing your credit history may harm your company’s credit rating.
Closing a bank account and closing a credit account are two different things. Your credit score will not be affected if you close a bank account.
Your history of timely payments affects your credit score even if you don’t use any older credit accounts. So in actuality, your creditworthiness improves as your credit line ages.
Keep a Check on Your Credit Utilisation Ratio
Reporting companies examine the credit utilization ratio when you ask for credit (CUR). This proportion shows how much credit you’ve used as a share of the total credit you were given. So your CUR is 50%, for instance, if you have a credit limit of £12,000 but only spend £6,000 of it.
Even if lenders grant you more credit than you require, it’s a good idea to use it only promptly. Use at most 30% of the total credit available to you.
Knowing this is also beneficial when choosing how much credit to apply for. To avoid failing the CUR threshold recommendations and punishing yourself, you should always request more than you need.
Also Read This: JCPenney credit card approval score
A Good Credit Score
Your personal credit history, which includes the total amount of debt you owe and the number of credit cards you have open, is the basis of your credit score. Business credit score ranges anywhere from 0 to 100, whereas personal credit scores range from 300 to 800.
What makes up a good credit score? Most credit bureaus define “good” as 700 or higher for personal scores and 80 or higher for business credit scores.
A high credit score might assist your company in obtaining financing from lenders with favorable interest rates and terms. But obtaining a respectable credit score takes time. You must frequently pay your bills on time, settle any outstanding credit amounts, and cultivate strong bonds with your suppliers.