Having a good business credit score is important for a variety of reasons. If you’re applying for business financing, it helps lenders determine your ability to repay your bills on time. It also plays a role in the instant approval of short-term business loans, and helps build your business’ reputation which could attract more investors to your company.
If you’re a young company that’s still building your credit background, or your business is recovering from a bad credit score, here are five tips for improving your credit standing:
1. Don’t Miss Payment Deadlines
Paying your bills on time is immensely important to your business credit score. Missing even a single payment can knock up to 100 points off your score, and repairing it could take at least 6 months. You also run the risk of damaging your relationship with your lenders and suppliers.
There are a number of ways to avoid missing a payment deadline. You can set-up an autopay which automatically deducts credit payments from your savings account. You can also set monthly reminders to alert you when it’s time to pay your bills. If possible, set the reminder a few days ahead of the payment due date. Sometimes payment processing can take a few days so paying your bills earlier ensures that it will arrive in your lender’s account on time.
2. Address Issues in Your Credit Report Immediately
Mistakes in credit reports happen all the time. If left unaddressed, they can lead to a massive dent in your credit score. Entrepreneurs should make it a habit to ask for a copy of their business’ credit report from credit bureaus every so often.
When reviewing your credit report, pay close attention to the list of payments you’ve made to suppliers and lenders. Sometimes they forget or fail to report payments to the credit bureau and then those payments aren’t reflected on your credit report. If this happens, report the mistake to the credit bureaus immediately so they can verify it with the lenders and you can avoid any consequent damage to your score.
3. Work with Lenders and Suppliers that Report Immediately to the Credit Bureaus
Credit bureaus don’t usually require lenders and suppliers to report payments immediately, so some lenders and suppliers don’t bother to do it. Of course the easiest way to avoid unreported payments is to work with lenders and suppliers that report them immediately. If you’re actively looking for lenders and suppliers, ask them point blank if they do. If the answer is no, it’s probably best not to work with them. When you’re still building your credit score, you want every repayment reflected on your report as this can help increase the score. The more positive reports you get, the better your credit score will be.
If you’ve already started working with a lender or supplier and you learn the hard way that they aren’t reporting your payments to the credit bureaus, you should request a copy of your payment history from them so you can use it to dispute the unreported payments with the credit bureau.
4. Keep Your Credit Utilization Ratio Low
Your credit utilization ratio is the percentage of your total available credit limit that you are currently using. It’s easy to calculate. Your divide your current credit card balance by your total credit limit.
This ratio has a direct impact on your credit score because it’s an outstanding balance that needs to be paid. The higher it is, the more debt you seemingly have. If you have a total credit limit of $10,000 and your current balance is $6,000, that means you’ve used, and still need to pay back, 60% of your total credit limit. The higher your ratio, the more likely it will cause a decrease in your credit score. As a rule of thumb, you should keep your credit utilization ratio below 30%.
The best way to keep your ratio down is to make your credit card payments on time. When you make a payment on time, your credit is restored (lowering your balance), and thus lowering your ratio. Limiting or restricting credit card use will also help decrease your ratio. When you’re not adding more debts to your account, it’s easier to pay off your outstanding credit balances.
5. Keep Unused Credit Lines Open
Most businesses close their credit lines once they’ve been paid off. However, if you’re trying to build credit, keeping credit lines open when they’re not in use can be beneficial for your credit score. Why?
We know that your credit utilization ratio is calculated by dividing your current credit card balance by your total credit limit. If you keep a credit line open, you still technically have access to that total limit. If you’re not using any of it, your balance will remain at 0. This will reflect a ratio of 0%, which is the lowest it can be. This low ratio overtime will cause your score to improve.
Improve Your Credit Score to Ensure Instant Approval for Short-Term Small Business Loans
Business owners know how important access to additional financing is in the growth of their business. Being able to show lenders a solid credit score is essential to qualifying for business loans that offer good terms and low-interest rates.
If your business is in need of quick financing but you’re struggling to obtain it due to a low credit score, consider applying for a loan from online alternative lenders. Online and alternative lenders can get approval anywhere from 24 hours to a few short weeks. Some may require a personal guarantee or collateral to secure the loan if your credit is very low. They may also charge higher fees to lessen the risk they’re facing. Nevertheless, it’s still a good option to consider if you’re looking for a fast loan solution.
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