How To Improve Your Business Credit Score
The health and success of your business depends on how it is rated by credit reporting agencies. Any open credit business is assessed on the basis of mixed criteria. If you are looking for any type of financing, it is essential to check and improve this indicator. Follow our guide to do it right.
What defines the score
This measure works the same as a personal score, but the scale is narrower – from 0 to 100. It is the key indicator of the financial condition of organizations. All bureaus follow different calculation models to determine your score, but they look at all outstanding balances, past payments, and business experiences. The closer you get to 100, the better your reputation with institutions.
Why increase the score
If your business is considered financially stable, banks are more likely to approve funding. The indicator determines the range of options available, just as a personal score determines accessible loans and rates. Badly rated borrowers pay more interest and are more likely to be turned down by lenders. The same is true for businesses.
If the score is unfair
Sometimes companies have declining scores through no fault of their own. The office may lower the status of your business due to incorrect data in its report. This is a common situation. There are a number of methods that businesses can use to correct mistakes – using the services of credit service companies or handling disputes themselves.
As we mentioned, errors in your report are guaranteed to affect the score. To get rid of unwarranted derogatory marks, you need to follow a procedure similar to personal credit repair. Contact card issuers to collect evidence and send letters to offices or call them. By law, they are required to delete any information that cannot be verified.
Make sure your business history is accurate and up to date. Note that serious inquiries also affect your score, so avoid applying for loans repeatedly within a short period of time. Follow these steps to improve your status:
1. Examine your company’s report
Unlike consumers, business owners do not have the option of checking reports for free. To see if your credit history is correct, contact three bureaus: Dun & Bradstreet, Equifax, and Experian. It is important to involve all three sources, as they compile their data independently. All stories can be skewed, so you need to get the full picture.
Take a close look at each of the documents going line by line. Identify any derogatory marks – events reflecting failure to meet obligations, such as missed payments. If any of the amounts and events are incorrect, you can formally contest them.
2. Never miss a due date
This is the first condition. Everything you do will be pointless if you don’t pay your bills. Paying on time is one of the easiest ways to increase score.
3. Decrease use
Usage is the ratio of the sum of the balances to the sum of the limits. It shows how much of your available credit is being used. It works the same as personal credit cards – the less the price charged, the better for the score. While individuals should aim to hit the 10% ratio, businesses could keep it below 15%. Here are three proven ways to reduce the metric:
Paying off the outstanding balance is a no-brainer, and lowering the ratio is guaranteed. If you can’t afford to pay the full amount, at least make the minimum payments.
You can also approach proportion from another angle. As your limit increases, this will change the ratio in your favor. Request an extension from your credit card issuer.
Use less available credit to reach your goal.
A new line of credit will increase the total amount of credit available, which is also guaranteed to lower the ratio. Don’t use this line – it’s just a way to move the partition.
Each bank shares data with offices based on its reporting cycle, typically every 30 days. So, if you spend a lot and pay off the balance on the due date, the report may still show large debt. Make sure your expenses don’t pile up at the end of the period.
4. Open an account with a supplier
If you have worked with some of your suppliers for a long time, use this relationship to open a credit account. It will also boost the score, as there will be more positive payouts on your record.
5. Generate new favorable entries
While lenders share data with one, two, or three bureaus, vendors and vendors may not report your payments at all. However, it is still possible to make these positive business references work in your favor. You can add them manually to the company file by contacting the rating agencies. Include as much favorable information as possible.
6. Clear paid collections
Paying off a debt in collection won’t help your score a bit if the agency can’t remove it from the data they share with the bureaus. You must ask for it explicitly. Make sure the collection is gone from your records. Otherwise, debt will always hurt your status.
A business’s credit rating is a critical factor in obtaining financing, especially loans. If your status is far from perfect, this is nothing to worry about. There are many ways to push it to the top, from correcting mistakes to creating a new, positive story.
This article does not necessarily reflect the views of the editors or management of EconoTimes.