Improve Your Business Credit Score

Every individual has a credit score that reflects their likelihood of repaying debt, but did you know that businesses like yours have credit scores too? A good business credit score can help you get loans, reduce interest rates and enhance repayment terms. If you’re seeking funding for your business, it pays to understand all the areas that impact your business credit score and improve them wherever possible.

Why a Business Credit Score Matters

Just like a personal FICO credit score, a business credit score tells lenders how much of a “risk” your business might be to lend to. In other words, if they allow you to borrow money, how likely are you to repay the debt on time and in full? Your business credit score will impact many different aspects of a lender’s decision to let you borrow money, including:

  • Whether you can borrow in the first place: Many lenders won’t lend money to businesses with poor credit scores
  • How much you can borrow: Better credit scores generally translate to higher credit limits
  • The interest rate you’re charged: Higher business credit scores get lower interest rates (and vice versa)
  • Repayment terms: Businesses with lower scores may need to repay loans more quickly
  • Other factors: Business credit scores can also affect other areas like your ability to open business bank accounts, how much you pay for insurance and whether suppliers will do business with you

Credit Agencies That Score Your Business for Credit

There are three main agencies in the U.S. that measure, monitor and provide business credit scores: Dun & Bradstreet, Equifax and Experian. The first step in improving your business credit score is understanding the information they currently hold on your business’s credit history. Unfortunately, they do charge a fee to get a copy of your business credit report (typically between $40 and $100). You can order your business credit report here:

How Businesses Are Scored for Credit

Your business credit score is based on several factors that the agencies use to calculate a final amount. Business credit scores typically run from a value of 0 to 100, with higher being better. Each agency uses a slightly different scoring system and weights each area differently to come up with your business credit score. This means the advice we give below can impact your score differently with each agency. That said, following this advice should enhance your score with any agency, so we definitely recommend taking these 10 steps.

Check Your Business Credit History and Correct Any Errors

Despite the efforts of the credit scoring agencies, mistakes can happen. First, check your business credit report. If you find any inaccuracies, contact the relevant agency with evidence and they should update their records.

Incorporate Your Business and Form an LLC or Corporation

It’s good practice to set up your business as a separate legal entity. This will keep your personal and business finances distinct while reducing your personal liability. It can also positively impact on your business credit score, since it won’t be as closely tied to your personal credit score. You should also get an Employee Identification Number (EIN) from the IRS.

You incorporate Blue Widget as Blue Widget LLC and get an EIN number to solidify your business as an independent entity.

Always Pay Your Bills on Time

A major factor in your business credit score is how quickly you settle bills. This means you should always pay your invoices and bills by the due date. If they go delinquent, that can significantly lower your business credit score and damage your relationship with the creditor. Here’s our guide to tracking and paying bills on time.

If Possible, Pay Your Bills Early

Another way to boost your business credit score is to pay bills early. Some agencies use the average amount of time an invoice is outstanding to help calculate your score. If you have the money in the bank, settle bills shortly after they come in, regardless of payment terms.

You manage your business accounts payable really well and always pay your bills on time or before they’re due.

Keep the Amount You Owe to a Reasonable Total

The more outstanding debt you have, the lower your credit score. If you need to purchase supplies or products, it’s better to place more smaller orders so your debt balances stay low and you develop a strong history of making regular, on-time payments.

You make sure that your business never has more than $3,000-$5,000 in outstanding debt to suppliers.

Stay Under Your Revolving Credit Limit

If you have “revolving” credit like a business credit card, always stay well below your maximum credit limit. Under-utilizing your credit tells potential lenders that you’re managing your business well and not taking on more debt than you can handle.

Your business credit card has a credit limit of $10,000, but you seldom use more than $3,000.

Develop a Business Credit History as Quickly as Possible

The age of your business credit card and loan accounts is another positive indicator to credit agencies. The longer you’ve had an account, the more payment and credit history you will have built up. Agencies will use this record of past behavior to calculate your future credit risk; a business with more strong history represents a safer bet.

Build Your Company Size and Age

The larger and older your company, the more chance it has of staying in business. Agencies use benchmarks and industry data combined with unique data on your business size and age to determine how much risk your company presents to them.

Due to good business management, your business will be growing to include seven employees this year.

Avoid Legal Action, Liens, Bankruptcy and Judgments Against Your Business

Needless to say, any judgments, legal actions and other official censures of your business are red flags to credit agencies and potential lenders. If you’re at risk of being subject to legal or other action, resolve the issue as soon as possible.

Understand What You Can and Can’t Control

There are several other factors that credit agencies use to calculate your business credit score, including the industry you’re in, current economic factors, the state of the market and various other areas. You don’t have a lot of influence over these, so stick to the steps above and don't spend time worrying about the rest.

Remember that changes don’t happen overnight, but the combination of a well-run business, good financial control, paying bills on time and managing your credit will all help you get a better business credit score.

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