Business credit scores are crucial for the success of a business. If you own a business, you are probably aware of how beneficial business credit cards can be. Though they can be beneficial, they can also deteriorate your credit score if you aren’t careful. If you are interested in a credit card, pulling out a loan, or already have done so and need to improve your credit score as much as possible, continue to read this article to find out how to do so.
What is a Business Credit Score?
Similar to a business credit score, a business credit score is an overall score you receive regarding any credit cards you have opened under your business’s name. Credit reporting agencies calculate a score based on the following:
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- Number of trade experiences
- Outstanding balances
- Payment history
- Time of payment
There are many components a credit reporting agency will consider. Business credit scores range anywhere from 0 to 100. The higher the number, the better the credit score.
Why is it Important to Improve a Business Credit Score?
The main reason why you should improve your business credit score is to open the option of borrowing more money, whenever you need to. Your business credit score can dictate whether you can borrow more money or not. If you have a high business credit score, you can borrow more money. A lower business credit score can limit how much you borrow if you are able to borrow any at all.
How to Improve your Business Credit Score
Starting and owning your own business requires consistent investing. Regardless of your business, whether you are a caregiver or a car salesman, you can expect purchases to be consistent for your business. Oftentimes, they will be large purchases, and if they are not you can expect at some point to make a purchase requiring a large payment. For example, you are a caregiver and purchase scrubs, gas, food, etc. for your job. You plan on opening a caregiver location one day. This will only be possible if you have a good credit score, where you will be able to borrow money to build and open the location. Here is how you can improve your credit score.
Check Your Credit Report
First things first — check your credit score. See what you are working with and where your business’s credit is at. You can do so on credit report companies, such as Credit Karma and Equifax. There are many different credit reporting companies you can use to check your business’s credit score. Some are free, while others may require a payment or a fee. After you figure out your credit score, you can figure out which credit card accounts are raising your credit report and which ones are decreasing it.
Pay Your Bills on Time
Paying your bills on time is obvious, however many people neglect this rule and it negatively impacts their credit score. This is the easiest way to improve your credit score and the most important one. If you are trying to improve your credit score in other ways, but forgetting to pay your credit cards on time, all other methods for improving your credit score will not matter.
Decrease Credit Card Usage
When credit reporting agencies are reviewing your credit usage, they will look at both the amount of credit used and how much is remaining. This will determine your credit card score. A rule of thumb most credit card users go by is, to keep this ratio under 15%.
Here is how to keep your credit card ratio under 15%:
- Pay off your balance: Decrease your ratio by paying off the balances you have. If you are unable to do this at this time, pay them off as much as you can.
- Increase your credit limit: If you are able to, ask your credit card provider to increase the credit card limit. This will decrease the ratio and allow for a better credit score.
- Decrease spending: Decrease the amount you spend on your business credit card.
- Open a new credit card: If you are trying to improve a bad credit score, you might be thinking why would I open another credit card? Opening a new credit card and setting it aside will look good to credit reporting agencies. Technically, you have money available to you, but you are responsible for not using it.
- Pay your credit card bills more often: Another way to keep the ration down is by paying your credit card bill more than once a month. In this regard, expenses will not pile up over time.
Consider Credit Card Accounts With Suppliers
If you own a company that relies on suppliers, a good idea would be to open a credit card with them. This enforces good payment relationships because you can remain organized by increasing the number of payments on your file.
Add Positive Payments to Your Credit File
Opening a credit card with a supplier may not add nor take away from your credit report. Some suppliers do not share payment data with business credit reporting agencies. However, you can do it yourself. Submit these to your credit reporting agency manually to point out your positive credit habits. The more successful business credit experiences you can add to your file, the better.
Dispute Errors
With credit card companies and credit reporting agencies, you can report any errors made by someone else. This can only be done if what you are reporting is true, accurate, and up-to-date. The same goes for hard inquiries that negatively impact your credit score. If you notice any of these, call to dispute the error. This is an efficient way to improve the credit score of your business.
“Pay for delete” Method
Pay for delete is a method used when the debt was sent to collections and credit users want it removed from their credit score. Though many agencies won’t allow this, it is always worth a try. In order to pay for delete, you will need to ask for this and it normally requires you to pay off the debt in whole. Make sure it will improve your credit score because you can still pay the debt off and be left with a bad business credit score. There’s no need to pay off the debt entirely if you do not come to an agreement about “pay to delete.” In the end, you need to have the negative account history removed to improve your credit score.
Recap
Don’t wait until you need to make a big business purchase to improve your credit score. It is guaranteed you will eventually run into a situation where you need a loan or a credit card for your business. There are many ways you can contribute to the improvement of your credit score. If you feel there is no going back, there are always ways you can improve your credit score, even if it is little by little. Try the above-mentioned tips and stay on top of payments.
