Have you ever checked the credit score of your business? Yes, then you’re on the right track. However, if your answer is no then it is time you check the credit score of your business. Business owners, be it small or large have extensive knowledge about credit score. They work hard on a daily basis to keep their business thriving. They go the extra mile to keep their business growing. From vendors to customers they do every possible thing to market the products and services.
If you’re into retail or e-commerce then you even have to make sure that the payments you receive from the customers are also secured. Although for all such card processing (credit card processing) you can rely on Paymentcloud. But one of the most important the businesses neglect is frequently checking the credit score of their business. If not taken seriously, this little act of negligence will come back to bite them.
What is a business credit score?
A business credit score will help your lenders in understanding whether you will pay your dues or debts in a timely fashion or not. There are many credit reporting agencies that will help you in finding the credit score of your business. Your credit report is summed into a single number, this number will act the summary of your business credit history. The credit report will include all the information relating to your business such as the time of operation, company details, director details, credit inquiries your business has made, and commercial information. One important thing to remember is that your personal credit score is not anywhere related to your business credit score.
This score will determine how lenders and peers will be viewing your business. If your credit score is excellent or good more lenders will be willing to join you in the journey to take your business to new heights. With a good credit score, you can negotiate better terms, secure loans at better rates. If you’re a business owner then you already know how helpful it will help your business to receive loans at low-interest rates. For all this to be possible you must maintain a healthy business credit score. But the problem is that most businesses forget how important their business credit score is. So if you are planning to take finances to expand your business then you must work on improving your credit score.
You can go through the MNYMSTRS financial literacy course to learn more both about personal but also corporate finance.
Good credit score
The credit scoring agencies follow a comprehensive system to score a business. The scale for the score is between 0-100, it is indicated between below average to excellent. Some credit scoring agencies scale it between 0-1200.
- Below Average- 0-509
- Average- 510-621
- Good-622-725
- Very Good- 726-832
- Excellent- 833-1200
The higher your business credit score, the better. For some of the lenders it is okay for giving you a loan if your score is between average to good. Others will lend you if your score is between very good to excellent. However, one thing you must remember is that if your score is less than average then it is impossible for any lender to trust your business.
Building a good score is not a simple task and it certainly cannot be done within a single day. However, with constant efforts and checking your score frequently you can improve your score. If you are looking for lenders to finance your business, then it is advisable to start early on to build a good credit score. Ultimately, it is important to remember that a wide variety of factors can have an impact on your credit score. For instance, credit cards can affect your credit score in a few different ways. Even applying for a credit card can play a significant role in how your credit score is calculated. With this in mind, if you are considering applying for a credit card, it is best to use personal finance companies like SoFi as they can carry out a soft credit pull that will not affect your credit score.
Here are a few important tips to help you in improving your credit score.
Timely payment of dues
This is understandably one of the most simple and easiest tips to follow out of all the tips mentioned. Not paying your dues on time will not only affect your reputation it will also hurt your credit score. Paying your debts on time will save you from the trouble of putting extra effort to improve your business. Anything you do to improve your credit score will come off as you trying to avoid debt risk. With simple steps, you can avoid late payments. You can either set reminders on your mobile, so that when it is time you will never forget your payments again. Not only this, but you can also even create a spreadsheet to schedule your payments. Make sure you pay on or before the due date to avoid any negative effect on your business credit score.
Limit taking credits frequently
If you take too many credits, then it can become quite hard for you to pay them up. One must always make sure to handle all the loans and business credit cards they have taken. Most of the lenders would prefer to lend loans to a person who has fewer obligations on their plate. It is a way of reassuring themselves that they will get their money back. Also applying for new credits will also bring numerous credit inquiries. Which may have a negative effect on your credit report.
Frequently check your credit report
There are many credit reporting agencies where you can check your credit score. Some of them offer free credit reports while others may charge you from your second report. Whatever the case is, checking your credit score frequently will only do good for you. To understand why your score is bad, you must first see the report. Point out the negative points that are affecting your score and then work on these points to improve. If there are any points that need to be corrected you can contact the agency. To avoid any surprises it advisable for you to check your credit score at least once a month.
Open a business Line of Credit
Line of credit or a business credit card will surely boost your credit score. It will also help you in improving your score and can easily get credit cards. The only condition for it to work is that you must pay your bills diligently. Your timely payments will show your lenders that you’re trustworthy. Also getting LoC is quite helpful for your daily business operations too. It will come to your rescue when you have an emergency situation and contingencies.
Credit utilization ratio (decrease it)
Your credit utilization ratio is the determining factor for the credit rating agencies. The credit utilization ratio is the ratio of credit used to the actual credit available. If your credit utilization ratio is low, your credit rating will be better and most importantly there will not be any negative points in your credit report. It is advised to keep your credit utilization ratio under 15%. There are a few methods to keep your credit utilization ratio low.
- Paying off your loans in time decreases the ratio. Even if you cannot pay them completely at least pay as much as you can to keep them low
- You can ask your credit card provider to increase the limit of your card.
- It is advisable to reduce your credit card spending as it will reduce your ratio
- Pay your bills if possible twice a month, if not see that you pay them at least once a month
- Open a new LoC, as having more credit options will make you look good for the credit report agencies.
Conclusion
Business credit scores are quite important for your business’s success and financial health. Money plays a crucial part in the success of a business. Without the help of money, it is impossible to take up all the new projects. For a business, it is quite hard to raise finances if its credit scores are low. So it is important for you to keep an eye on your credit report. Check it frequently, if there are any corrections to be made then inform them accordingly and they correct them. The higher your score is the better. So if you think your credit score is not as high as your lenders prefer, you don’t have to worry. All you have to do is follow simple steps to improve your score. Improve your credit score and get loans at better interest rates and have more available options.