How to Improve Your Business Credit Score

“Business has only two functions – marketing and innovation.” – Peter Drucker.

Peter Drucker was about right about business only having two function. However… for this to be possible, your business needs cash, and lots of it.

When you don’t have the necessary funds to achieve your marketing and innovative goals, the next best option is to apply for a loan. 

But… picture this scenario:

You walk into a bank, your loan application tucked squarely in your bag or briefcase. After several minutes of waiting, you’re ushered into the office of a senior loan officer who welcomes you into their office and tells you about their impeccable service delivery and how they can provide the necessary funding for your business. 

After part of their qualifying process, the officer conducts a soft or hard inquiry on your business credit and hints that the application will have to stop at this point. 

“Your business credit score doesn’t match our policy to grant your loan request. However, if you choose to continue the application, we’ll have to present a new set of repayment rates and plans…” 

You walk out of the bank rattled. It doesn’t help that other banks and lenders also say the same thing. You either agree to expensive interest rates and fees or you don’t get the money. 

This brings us to the question: What is a business credit score, and why is it important?

And further, how do you improve your business score? 

What is a Business Credit Score?

A business credit score is quite similar to a personal credit rating. For instance, you need to have a good credit score and credit report to apply for credit cards, mortgages, car loans, and even get gainfully employed. 

Your personal credit score shows lenders your creditworthiness and if they can trust you to pay back a loan.

It’s the same thing with business credit scores.

A lender reviews your credit information and ascertains whether your business is financially responsible for paying back a loan.

Why are Business Credit Scores Important?

The relevance of having an excellent business credit rating cannot be downplayed. The higher your score, the more you can borrow, the lower your interest rates, and the faster you can achieve your business goals. 

An high credit score allows your business to experience faster approvals empowering you to purchase new equipment and inventory, develop new products and services, hire more employees on your payroll, etc. 

The reverse is when your business’s credit scores are low. You experience higher interest rates on loans, have access to less money, and deal with additional fees and penalties on late repayments.

Getting a high credit score allows you to not just make better business decisions – but achieve them faster.

That’s why it’s so vital for your business to keep your business credit score up.

These scores range from 0 to 100, so it’s essential to keep closer to 100 as much as possible. 

How to Improve Your Business Credit Score

There are several tips you can implement to improve your business credit score. They include: 

1. Check Your Credit Report

First things first; you need to know your credit score by obtaining the report from the credit reporting agencies such as Equifax, Experian, and – most importantly for your business – Dun & Bradstreet. 

With your business credit report, you’ll know exactly what you’re dealing with and can review any disputable issues in the report. This report will also bring to light any critical issues impacting your credit score.

2. Pay Your Bills Promptly

According to FICO, your payment history makes up 35% of your credit score. It is essential to pay your bills on time as it will keep your scores up. When you fail to payback your debt, lenders see you as a risk, and your credit score takes a hit. 

3. Clear Up Any Discrepancies and Errors

While checking your credit information, you might find some inconsistencies and errors logged by creditors.

According to the Federal Trade Commission (FTC), one in five Americans has erroneous data in their credit report.

If you spot a piece of incorrect information on your business credit report, you should take it up with credit reporting bureaus and credit card companies to sort it out.

4. Reduce Your Credit Utilization Ratio

Another way you can improve your business credit score is to lower your credit utilization ratio. Your “Credit Utilization Ratio” is the ratio of your monthly credit spent to the available credit.

For example, say you have a $250,000 line of credit, but you owe $200,000. That means you’re utilizing 80% (200/250 = .8) of your available credit. That’s way too high.

There are several ways you can keep this ratio as low as possible: 

• Pay off your balances more than once a month.
• Reduce spending on your business credit card.
• Open a new line of credit.
• Ask your creditor to increase your credit limit.

These foolproof strategies will reduce your utilization ratio and improve your business credit score. 

5. Create Credit Accounts With Suppliers

If you’ve developed a good relationship with your vendors and suppliers, you can create a credit account with them.

This increases positive “on time” payments on your business credit report and improves your credit score as a result. 

Having an excellent business credit score is crucial to securing the best terms for funding your business. Use these tactics to establish and improve your business credit today!