Your Business Credit Score: What it is and how to improve it

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How to Understand Your Business Credit Rating
(Last Updated On: July 31, 2019)

This article was written by: 
Patricia Russell, founder of personal finance blog, FinanceMarvel.

Business credit score is a decisive numeral that signals the soundness of a business. The score is often used to calculate business creditworthiness. According to Experian, a business credit score is calculated based on the number of trade entries, payment chronicle, outstanding balances, historical trends and public records. Demographic factors such as age of the credit file, business size and Standard Industrial Classification is also used to arrive at the credit business file.

Business credit score is weighted on a scale of 0 to 100, where 100 represents the lowest risk and 0 the highest risk. Making an effort to improve your business credit score will make it easy for your business to attract funds that can be used to improve cash flow, hire new staff and expand the business. If your business has an imperfect credit score, there are many strategies to help you get on track. Here are seven proven strategies…

  1. Order a business credit report

The first path to mending your business credit score is ordering a business credit report. From the credit file, you will be able to scrutinize your credit history; identify disputed entries and find transactions that are impacting your business negatively. The credit report can be ordered at a cost from any of the three sanctioned credit bureaus, Experian, Equifax and Dun & Bradstreet.

  1. Commit to paying your bills on time

The most fundamental principle of maintaining a good credit score is ensuring your bills are paid on time. Clearing old debts and any pending bills should always be your priority because failure to do so may forestall or annul any moves geared towards improving your business credit score.

  1. Work out strategies to even and ultimately lower your credit utilization

A healthy business should ideally have low credit utilization relative to the allowable credit amount. The rate of credit utilization is important because the credit agencies often assess this factor before approving any new lines of credit. I suggest maintaining a utilization ceiling of less than 15%. The goal of reducing your credit utilization can be achieved through:

  • Paying off the existing balances or reducing it the lowest possible level
  • Growing your business credit limit by requesting your credit card issuer to increase the limit
  • Opening a new line of credit, even if you do not intent to use it because the credit reporting agencies will see this in a positive light.
  • Reduce the level of credit spending
  • Try to pay your bills at least twice a month to double down the credit ratio and keep your monthly spending in check.
  1. Create more credit accounts with your suppliers

As a business, you will definitely be making many repeat trades with your suppliers. You can use this opportunity to enhance your creditworthiness by opening new accounts and increasing the positive payments with the same suppliers. In the eyes of credit reporting agencies, the engagements will come off as a sign of confidence and will help improve your business credit score.

  1. Ensure your credit file contains positive payments and experiences

If your business is dealing with many vendors and suppliers, not all of them will have the courtesy to report positive payments with the credit reporting agencies. For this reason, you can take it upon yourself to call the credit reporting agencies and have the references affixed manually. Doing so will ensure any unrecorded positive payments are listed. If your business credit score has been suffering from poor reporting, this move will provide a much needed boost.

  1. Impugn any errors and inquiries on your business credit file

It is important to recognize that even the most efficient credit reporting system may be prone to errors or misreporting. To stay on the safe side, always ensure the entries in your business file are accurate and updated. If you notice any mistakes, get in touch with your credit card issuers and credit reporting companies to have the entries expunged from your file. The correction will cure credit reporting problems that may not be remedied by paying off the outstanding balance.

  1. Ensure negative reports on paid-up debts are expunged from your credit file

If your business is mired in debt, it is likely some of the old debts will go into the collection. Since the ramifications of the negative accounts are grave, always ensure all the negative debt reports are removed from your business file, once the debts are cleared. This is also important because having a fully paid debt doesn’t mean the report won’t appear on your business credit file. The clearance will go a long way to clean your business file and boost credit scores.

A poor credit score will limit your ability to access credit and grow your business. Although good credit scores will guarantee you and your business a solid financial future, the path to success will largely depend on the efforts you are putting to achieve this goal. One of the most widely used strategies for correcting negative accounts in your credit file is using credit repair services. This legal process is legitimized under a 2013 Congress approved the Fair and Accurate Credit Reporting Act. When selecting a company, always take time to analyze defining aspects like monthly fee, credit features and the much looked at BBB accreditation and rating.

Patricia Russell is the founder of the personal finance blog FinanceMarvel. With more than 10 years of experience in helping families and individuals take control of their personal finances and achieve financial independence. She has been featured in US News, Newsday, Investing.com, MarketWatch, Newsweek, and many other leading publications.