Tips for Improving Your Business Credit Score

Improving your business credit score increases your chances of receiving funding for your business needs. Lenders, suppliers, and bankers will assess business credit reports to know whether your company is “creditworthy” before lending money.

A business credit report contains company financial information from which business credit bureaus such as Dun & Bradstreet, Equifax, and Experian will create business credit scores.

What is a Good Business Credit Score?

No specific guideline exists to determine whether a credit score is good enough. This is because several business credit scoring schemes have varying scoring ranges.

Fico Score

One of these scoring models is the Fair Isaac Corporation (FICO) score, which considers the following:

• Payment History (35%): Considers whether credit accounts are paid on time.
• Debts (30%): The proportion of money owed to the available credit amount.
• Credit History Length (15%): Generally, the longer you have credit, the better your score.
• Credit Mix (10%): Account variety—the more diverse the accounts (for example, credit cards, retail accounts, and installment loans), the higher the credit score.
• New Credit (10%): Fresh accounts created in a short period lowers trustworthiness and credit score.

A FICO score ranges from 300 points to 850 points. A score below 580 is considered below average and signifies risk. 580 to 669 is fair; lenders may already approve loans at this score. 670 to 739 is described as “good”, 740 to 799 is “very good”, and 800 and above is “exceptional.”

Vantage Score

Vantage Score is similar to FICO but attaches different values to factors that FICO considers. It also requires a single trade line (unlike FICO, which needs two), with one older than six months and another that was active during the past six months.

Again, knowing what the lending company considers in scoring is important. That said, here are ten general tips to improve your business credit score:

1. Pay your debts: Lowering your debt is a sure way to improve your score. Consider making payment plans to make it more convenient. Take note that paying your debt in full will cause a greater increase in your score than partial payments.
2. Maintain a low credit utilization rate: The less credit you use, the more reliable your business will appear.
3. Be careful about using credit: It’s best to distribute credit usage over several accounts. Also, avoid using too much credit at one time. This may cause the credit company to do a business credit search to check for anomalies.
4. Take care of your personal finances. If your business is new, the credit companies may check your personal accounts to know what credit score to give your business.
5. Ask your suppliers for help: Ask them to provide feedback and payment records to the credit bureaus.
6. Monitor your business credit report: Credit card companies and banks have credit monitoring services. Avail of these to track your transactions and catch fraud or mistakes.
7. File your accounts fully and according to guidelines: This will take more time than submitting incomplete accounts, but it will build a better business credit rating.
8. Avoid court actions and insolvencies: These will harm your credit score. If you want a good credit rating, try to solve them as soon as possible.
9. Seek the services of an accountant: Having one will help you manage your finances well enough to reflect an improvement in your credit score.
10. Consider hiring a credit repair service: Some credit repair services help businesses find and correct issues that are keeping their credit scores low.

Note that lenders have their own criteria for giving business credit scores. For instance, Small Business Administration (SBA) loans require a minimum FICO Small Business Scoring Service (SBSS) score of 160.

Some online lenders may not require any business credit scores if you have a high enough personal credit score.

Advantages of Having a High Business Credit Score

The higher your business credit score is, the lower the risk of lending you money. Because of this, more lenders and vendors may trust you enough to do business with you. It is even possible that they will give you better credit rates to keep you as their client.

Improving business credit scores may be challenging, but it is achievable. Get as much help as you can to speed up the process.

 

Sources:

https://www.sba.gov/blog/10-stats-explain-why-business-credit-important-small-business

https://www.investopedia.com/articles/personal-finance/011216/business-vs-consumer-credit-reports-whats-difference.asp

https://www.forbes.com/advisor/business-loans/how-to-build-business-credit/

https://www.investopedia.com/terms/f/ficoscore.asp

https://fee.org/articles/5-easy-steps-for-improving-your-credit-score/

https://www.experian.co.uk/blogs/latest-thinking/small-business/what-your-business-credit-score-means-and-how-to-improve-it-2/