As a business owner, a good credit score is crucial to ensure you remain eligible for business loans to grow your enterprise. A sound credit score demonstrates to potential lenders that you are a responsible and reliable borrower. So, you can easily access credit at lower interests rates.
On the other hand, a low credit rating dents your chances of securing a loan. Although lending options are available for businesses with bad credit, you should strive to boost your score to achieve long-term business success.
Here is a three-step guide to improving your business credit score.
Make Timely Payments to Creditors
Timely payment of your bills significantly boosts your credit score. However, you hurt your credit score when you habitually pay your lenders, landlords, vendors, and utility companies late.
Some strategies you can use to pay bills on time include:
- Set automated payments for recurring expenditures, such as rent and utility bills
- Use a spreadsheet to track every bill
- Create a system for manual payments (e.g., pay immediately or once a week)
No matter how overwhelming business responsibilities are, you should establish a sound bookkeeping system that allows you to keep tabs on your timelines. With timely payments, you not only evade penalties and interests but also maintain a healthy credit score.
Check Your Credit Utilization Ratio (CUR)
The credit utilization ratio measures your current debt divided by your total credit limit. The lower the credit utilization ratio, the better your credit score. As a rule of thumb, your credit ratio should not exceed 30%, but you should maintain a ratio below 10% for an outstanding credit score.
To maintain a good CUR, pay off your credit balances as regularly as possible. Other approaches that improve your CUR are:
- Don't close unused cards
- Take control of your spending
- Ask your creditor to raise your credit card limit
Remember that a high CUR (above 30%) shows you are cash-strapped and may not be able to pay your bills. Such a ratio hurts your credit score, and lenders will hesitate to extend additional loans to your business.
Check Your Credit Report Regularly
Credit reports are available online or from recognized credit bureaus, such as Transunion or Equifax. You should check your credit rating regularly to understand your credit position. If you find anything unusual on your report, you should contact your reporting agency immediately.
For instance, if a paid debt still appears unpaid or you find other people's information in your report, you should dispute it with your bureau in good time. Such errors can impact your score negatively and dim your chances of securing business loans.
Whether you have a start-up or an established business, you should strive to maintain a healthy business credit score. In doing so, you will secure funding for your business with minimal strain.
For more information on business funding, contact a company like TrustAFI.