How would you convince a stranger to loan you money to help grow your business? You might promise them you’ll be pay them back soon, but who would believe you? What if you could show them a demonstrated history of paying people back promptly, represented by a single number? That, in essence, is a business credit score.
Business credit scores typically run from zero to 100, with 100 representing the best credit possible.
A business credit score is a lot like your personal credit score. It’s sort of like your business’s 'GPA' that tells creditors whether you’re a good bet to pay your bills and debts on time. Your score might dictate not just whether you should get a loan, but for how much, and with what terms.
Business credit scores typically run from zero to 100, with 100 representing the best credit possible. The Dun & Bradstreet PAYDEX score has three general tiers: scores between 80 to 100 (low risk), scores between 50 to 79 (medium risk) and scores 49 and below (high risk).
If you’re looking for affordable financing, but fear that that a middling or poor business credit score is getting in the way, consider these eight ways to improve your score:
Check your business credit report regularly.
If you haven't been in the habit of reviewing your business credit this is the time to start.
It’s not enough to simply adopt better borrowing habits — you need to know where you business credit stands, and how your actions affect your score. Regularly reviewing your score as well as monitoring your credit for any changes will also give you a jump on challenging errors or mistakes that might drag your score down ahead of a loan or credit card application.
It’s not enough to simply adopt better borrowing habits — you need to know where you business credit stands, and how your actions affect your score.
Get your credit report from the three main business credit bureaus — Dun & Bradstreet, Equifax, and Experian — and give yourself a baseline understanding of how far you have to go to.
Decrease your credit utilization ratio.
If you’ve been in business for some time, you may already have a few lines of credit that you use regularly — a business credit card or two, for example. And one of the sneaky factors that can drive down your credit score is a high credit utilization ratio.
If your business credit cards and your business lines of credit are maxed out, that means you have a lot of outstanding debt to pay off...
Your credit utilization ratio is the ratio of credit used compared to the amount of credit available to you. If your business credit cards and your business lines of credit are maxed out, that means you have a lot of outstanding debt to pay off which isn’t a good sign for lenders.
There are few steps you can take to improve your ratio, including:
- Pay as much of your outstanding balances as possible: If you can’t pay off your existing balances entirely, at least pay off as much as you can afford.
- Boost your credit limit: Ask your credit card provider or other creditors to extend your credit limit to alter your ratio.
- Open up another line of credit: If you have another line of credit or credit card — even if you don’t use it — you’ll add a whole lot more unused credit to your ratio.
- Pay your bills frequently: Don’t let your bills pile up — pay off what you owe as quickly as possible.
Dispute errors and inquiries.
Credit bureaus aren’t perfect. Occasionally, you may notice a charge, pull or other negative feedback on your credit file that simply isn’t true.
If you see a report of an unpaid account or other incorrect information, call the credit bureau to dispute it.
There’s nothing worse than being blamed for something you didn’t do, but it may be up to you to clear your name. If you see a report of an unpaid account or other incorrect information, call the credit bureau to dispute it. An error on your report can drag down your score at an inopportune time.
Wipe collections notices off your record.
Part of what drives down your credit score is when your debts are sent to collections agencies. If you’ve decided it’s time to start cleaning up your business credit score, contact the agencies and see if you can “pay-for-delete” the strikes on your record.
If they won’t remove the strike, your score won’t improve.
You will need to explicitly ask the agency if they will delete your “charged off” account in exchange for your payment of the outstanding debt. If they won’t remove the strike, your score won’t improve.
You may also have to contact the original creditor and ask them to stop reporting the debt. The creditor will have less incentive for doing so — they’ve already passed your debt on to the collections agency — so it may take some savvy negotiating.
Pay your bills on time.
Here’s an obvious step that is worth mentioning just because it’s so important. If you haven’t been paying your bills (all of them) on time, it’s time to start doing that. Pay your utility bills, your vendors and any other invoices with your name on them in a timely fashion (the sooner the better). No matter what good credit habits you instill, everything will be cancelled out by your unpaid bills.
Pay your utility bills, your vendors and any other invoices with your name on them in a timely fashion (the sooner the better).
Keep in mind: paying some of your bills — like your cell phone bill or auto loan — won’t improve your credit score. Failing to pay them, however, can hurt your score.
Use your business credit cards responsibly.
Speaking of paying your bills, responsible credit card use — including paying off your balance each month — is an excellent way to build up your credit score.
In a way, business credit cards act as a sort of short-term business loan that you pay off as you go.
To qualify for a credit card with such a good introductory rate, you’ll need a strong business credit score.
In fact, some business credit cards, such as the American Express Blue Business Plus card or the Chase Ink Business Unlimited card, come with an introductory offer of a 0% APR for the first 15 months. That’s essentially an interest-free loan for more than a year (assuming you continue to pay your balance regularly). No other short-term loan product can touch that rate.
Of course, to qualify for a credit card with such a good introductory rate, you’ll need a strong business credit score. If needed, start with a secured credit card — which requires a cash deposit that you essentially borrow against — and work your way up to better offers.
Establish credit accounts with suppliers.
Looking for additional ways to increase your credit utilization ratio, or otherwise establish good credit habits? If you have good relationships with suppliers and vendors, inquire with them as to whether you can create credit account. Then, when you make your consistent, on-time payments with them you’ll log more positive payments on your credit history.
Add trade references to your credit file.
Even if you have credit accounts, not every supplier or vendor will share their payment data with a credit reporting agency. In fact, only a few thousand do so, out of the hundreds of thousands of suppliers in the U.S.
A trade reference is a report on past payment experiences between a business and a vendor, which includes information on the highest amount of credit used and the current total due.
You can, however, add some manually as a “trade reference” to your credit file with Dun and Bradstreet. A trade reference is a report on past payment experiences between a business and a vendor, which includes information on the highest amount of credit used and the current total due. You can get a trade reference from accountants, cleaning services, direct mail services, among others.
These references are additions to your credit report which further demonstrate your financial responsibility and impact your score for the better.
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Alongside the day-to-day responsibilities of running your business, improving your credit score is an important task you’ll have to take on as a business owner. The climb from poor credit to respectable and then excellent credit is a long one, but it’s worth it in the end for the opportunities a good credit history affords you.