Similar to a high FICO score, it is important to have a strong business credit score. In order to qualify for loans or get approved for trade credit, you must prove that your company is a safe bet for investors, banks and private lenders.
A low business credit score signifies that your business carries a significant amount of risk to lend funds to, which will result in either a denial of a loan or unfavorable rates and terms based on the level of risk. Additionally, you can qualify for lower insurance rates with a higher credit score.
How is Your Business Credit Score Calculated?
Your business score is calculated by credit-reporting agencies that utilize an algorithm based on various factors. Although your score can fluctuate slightly depending on the agency and its scoring model, similar factors are taken into account when determining your score.
Your business’ creditworthiness is rated on a scale from 0 to 100 based on the accounts in your company’s name. It is important to note, however, that business lenders may consider your personal FICO scores in their decision-making process.
How to Strengthen Your Business Credit Score
In order to improve your business’ creditworthiness, you must strengthen your business credit score. There are three effective ways to do so, which include:
Monitor Your Credit Report
The first and most effective way of strengthening your credit score is regularly monitoring your credit report. No system is created perfectly, and errors are common between lenders and credit reporting agencies.
If you don’t monitor your credit report, you will not be aware of discrepancies that can significantly plummet your business credit score. Get in the habit of requesting annual credit reports from the three credit reporting agencies, Experian, TransUnion and Equifax, which will alert you to issues that you must address to improve your score.
Pay Bills on Time
It is no easy task to manage your personal and business expenses, which is why you may not have enough funds every month to pay all of your bills on time. There are sources that may advise you to lag behind on payments, later agreeing with collection agencies on repaying lower amounts just to settle your debts.
While this may benefit you in the short term, not paying your bills on time can significantly affect your business credit score. Not only will you be obligated to pay a late fee and possible interest on the outstanding balance, a payment that is over 30 days late will be reported to credit agencies, possibly lowering your business credit scores. One source states that “payment history information typically accounts for nearly 35 percent of your credit score, making it one of the single most important factors in calculating your score.“
Paying bills on time will boost your credit score; in fact, paying bills ahead of the due date will play an even bigger role in strengthening your score!
Raise Your Credit Limit
Your business credit score is calculated by factoring in your credit utilization ratio, which considers available credit in relation to debt. It is advisable to keep the ratio under 30% to have a high credit score.
Although you may not be able to limit the amount of debt your company has, you can improve the credit utilization ratio by increasing your credit limit. While many credit cards will do so automatically after a certain period of time, you can make proactive efforts by contacting lenders and requesting an increase in your credit limit to better your business credit score.
Increase your credit limit in order to raise your business credit score by securing a small business loan from IOU Financial! Contact us to inquire about a small business loan of up to $300,000 in just 24-48 hours!