With a strong business credit rating, you’ll have the flexibility to obtain extra resources even during times when cash flow is a bit weak. This is of particular importance if you intend to grow your business, because waiting for enough money to organically roll into your coffers might mean you won’t be ready to seize opportunities as they appear.
That said, a weak credit score today doesn’t mean you’re doomed forever – there are multiple avenues to begin rebuilding your credit rating. Use the following tips to your advantage and over time your business credit score will be on track and better than ever.
Before making any changes to the way you operate, you need to know where you stand. The credit bureaus each weigh various factors differently, so you’ll want to pore over more than just one of their reports. The three major rating agencies for businesses are Dun & Bradstreet, Experian and Equifax. Unfortunately, they’re not required by law to provide you with a free report annually as is the case with personal credit reports. We advise you to pay the fee and get a report from each of these organizations at least once every six months. Ordering a copy won’t adversely affect your credit scores.
Once you have your credit report in hand, look over it to make sure there aren’t any inaccuracies. If you encounter anything that seems wrong, begin the dispute process right away so that it can be corrected. Whereas most of the tactics for boosting your credit score take a long time to come to fruition, overturning mistaken data is a simple way to gain a few points quickly.
Pay particular attention to items contained in the “negative” category of your report because these may be areas in which you can improve your credit going forward.
The credit bureaus get their information from the vendors and suppliers you regularly deal with in the course of normal business. If these partners aren’t reporting your history of payments to the bureaus, then this favorable material won’t be included in your report. Even a history of responsible payments to a single vendor can do wonders for your business credit score, but it’s of course best if you have multiple parties reporting on your excellent record of payments.
The ratio of your debts to your available credit is one of the key metrics that can affect your credit report, and the lower this figure is, the better. Paying off your business credit cards and other liabilities will free up money that would otherwise go toward interest, and it will probably boost your credit score at the same time. If you took out a loan to fund the starting of your enterprise, then it’s to your advantage to pay it off as soon as possible so that it won’t hang over your head, dragging your credit score down. You can also read our related article on personal credit card debt and mortgage payments.
There are many types of credit open to you as a businessperson, including bank loans, business credit cards and lines of credit from trade vendors. Always play by the rules of whatever credit arrangements you enter into. As you demonstrate that you’re able to use credit wisely without getting in over your head, your credit reports will begin to reflect this fact.
Whenever you use credit, attempt to put it in the name of your business rather than your personal name. Commingling your personal and business finances is sometimes unavoidable when you’re first launching a startup, but you should separate them as soon as possible. This will lead to a stronger business credit history.
If you have credit accounts in good standing that you scarcely ever use, resist the urge to close them out. You never know when they may come in handy in the future. Moreover, the closure of any account reduces the total amount of credit you have available to you and may therefore increase your percentage utilization stats, which is bad for your credit score.
If your debt load is unevenly distributed, try to rearrange it if possible so that you have smaller balances on multiple accounts. Then when you make regular payments on them, you’ll get credit for paying down more than one balance.
The timeliness of your payments is analyzed by the major credit agencies when calculating your credit score. This doesn’t just include paying by the agreed-upon date; it also encompasses making early payments too. Indeed, under Dun & Bradstreet’s PAYDEX system, a score of 100 indicates that a business tends to pay 30 days sooner than required while the score for a company that generally pays on the due date is only 80.
If you’re behind on payments, then it might be worthwhile to contact your creditors and get yourself caught up to date. Ask them to report your payments to the credit bureaus so that you can have this highly damaging information updated on your reports.
Because your credit score is a reflection of your activity over time, it takes a while for new data to replace old info. Be patient as you wait for your score to improve. Keep making on-time payments on all your balances, and sooner or later, you’ll see the results you’ve been hoping for start to turn into reality.
We’ve gone over a lot of ways to improve your credit, but it’s easy to become overwhelmed by all the avenues available to you. It’s best if you go over your financial situation closely and then set reasonable goals for yourself. Think about the number you’re striving to achieve and what it will mean for the health and bottom line of your enterprise. This will give you something solid to work toward and will serve to keep you focused and disciplined.
All is not necessarily lost if you’ve made a few unwise credit decisions in the past. The road to an enviable business credit score begins today. Follow the six steps outlined above, and you’ll be well on the way to a more robust, positive credit report. It’s critical to begin implementing good credit habits now so that you won’t be caught unprepared when you seek financing for expanding your firm. For extra info on a related topic, read our article on how to protect your company from financial fraud.
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