Every small business plans to expand and grow in the future, therefore establishing a good business credit score is crucial, especially if one is planning to apply for a business loan. A business credit score is normally calculated from various traits taken from one’s company and its financial history.
It’s evident that a business credit score can significantly impact one’s ability to obtain a small business financing/loan. Failing to maintain a healthy credit score also impedes one’s ability to secure affordable interest rates that could lead to increased debt in the long run.
Here are a few essentials worth noting to maintain a good credit score for any small business;
Always pay bills on time
Paying bills after the submission date is long overdue could lower a business credit score if the creditor opts to report you. Furthermore, the acquired late fees could accumulate and contribute to overall debt levels. Cultivate a culture of paying all business related bills on time or even ahead of schedule for best results.
For small businesses that can’t pay off their current card balances, consider increasing your credit limit so as to improve the debt to equity ratio and consequentially boost the credit score.
Constantly monitor both personal and business credit reports
It’s important that as a business owner, one regularly monitors both their credit and personal credit reports for false claims that can have a shocking impact on one’s ability to secure funding. Mistakes happen all the time, and they happen most often on business credit reports than on personal credit reports. Be sure to check for mistakes, signs of business fraud, identity theft or outdated information and get them fixed before applying for any financing.
Develop a credit history for your business
Separate personal and business finances and start building a business credit score. A business with an established credit record and available credit is appealing to potential loaners and investors. It helps to improve the appearance of one’s business funding capacity and stability.
Open a few business credit accounts like credit cards or loans and always remember to act on it accordingly. Apply for lines of credit to finance purchases like office supplies, computers, inventory etc.
Also, ensure that the vendors and credit providers are reporting your payments because the more they report a positive credit history to the credit reporting agencies, the higher your credit ratings.
Keep your credit card/debts levels low
Try to keep the business credit utilization low to boost credit score. Credit utilization is impacted by the percentage of available credit the business has outstanding at any given time. Make the revolving debts as low as possible, close to 30%. One can keep outstanding balances low by making multiple payments every month instead of waiting for end month or reaching one’s credit limit so as to pay off an account.
Observing these crucial credit score essentials will help build a solid business credit profile ensuring that business operations are carried out in a sustainable manner.