business credit

If you’re planning to apply for small business financing, it’s important to understand your business credit profile. According to Manta’s survey, out of 2,900 small business owners, 72% don’t know their business credit scores.

Your company’s credit standing heavily influences the type of financing you can qualify for, as well as the terms and the rates you get. The higher your business credit score, the better your chances of securing a small business loan. On the flip side, a low credit score can prevent you from borrowing money at all.

If you want to build or improve your business’ credit profile, here are five useful tips you should keep in mind:

1. Lower Credit Utilization Ratio

Credit reporting companies look at the ratio of credit your business used compared to the amount of credit available. It’s best to keep the ratio under 15%, but if that’s not the case, here are a few tips to reduce your credit utilization ratio:

  • Apply for a new line of credit. This tip may seem counterintuitive if you’re trying to reduce your ratio, but having more credit without using it can make you look good to credit bureaus. In other words, open a new credit line but DON’T use it.
  • Pay your existing debt. Paying off your balances will effectively lower your ratio. If you can’t pay off everything at once, reduce it as much as possible.
  • Minimize credit card usage. Keeping your credit card spending at a minimum can lower your credit utilization ratio.
  • Increase the credit limit. Asking your credit card company to increase your credit limit can instantly decrease your ratio.

2. Check the Accuracy of Your Report

While credit bureaus ensure that their reports are accurate, some business owners may still find errors in their profiles. Review your profile and check if there’s anything wrong with your report. Is there an unpaid debt you did pay? Or did they report an incorrect balance? Errors on your credit profile (even minor ones) can hinder you from qualifying for a loan.

Be sure to call the credit reporting agency and provide evidence that the information they presented is incorrect. Spotting errors and correcting them can help improve your business credit score.

3. Separate Business and Personal Credit

Separating business and personal finances may be challenging for small businesses and startup companies. However, the early you separate your business credit from your personal credit the better it is for your finances. It’d be easier for you to track your expenses, do your taxes, and protect your personal assets.

You can start by applying for a business credit card instead of using your personal credit card. Business expenses are usually expensive and it can hurt your credit score if you spend more than you can afford. Lastly, using your personal credit card won’t do anything to build your business credit scores.

4. Pay your bills on time.

This is one of the easiest and most common ways to improve your business credit rating. If you don’t pay your bills on time, your credit score will take a hit. Your efforts to improve your credit standing will be canceled if lending companies think you’re a debt risk.

5. Find Suppliers that Report Good Credit Behavior

Even if you have a good payment history with your suppliers, it’s not going to build your credit if they don’t report it to the bureaus. Before working with a supplier, be sure to ask them if they report to any of the major credit bureaus like Experian, Dun and Bradstreet, TransUnion, and Equifax.

The Bottom Line

Keep in mind that there’s no quick fix for businesses with less-than-stellar credit scores, and it will take time for startups to build business credit. With these tips in mind, you can start improving your business credit score and create a strong credit profile.

Rumzz Bajwa is a digital strategist and content marketer for SMB Compass. She enjoys spending time with her family. She loves to go out and experience new moments whenever they came to light. Rumzz discovers satisfaction in investigating new subjects that help to extend her points of view. You can frequently locate her immersed in a good book or out searching for a new experience. Connect with her on Twitter.

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