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Improve Your Business Score with These 5 Steps

Maintaining a good business credit is important for several reasons: Firstly, if you’re trying to obtain a small business loan to expand your business, lenders will offer you better interest rates which will increase your profit margins and give you an advantage over your competitors.

Secondly, business credit protects your personal funds and assets thereby making you less liable for business losses or bankruptcies. And thirdly, a great business score shows on the company’s credit report which gives investors, customers and partners an insight on its performance.

Most small-business loans are denied due to bad personal and business credit score

Bad business or personal credit is the number one reason why more than 45% of small business loans are rejected by lenders – and even if you do get a loan despite poor credit, it is most likely to have high interest rates which can create loss instead of profit for your company.

But the implications of poor business credit can go beyond the ability to get loans with favorable interest rates. It can also result in high insurance premiums and unfavorable payment terms from suppliers.

Now that you know how business credit score can impact the future of your company, you’re probably eager to know what you can do to improve it. Here are five steps you can take to build an impressive business credit.

Update Business Profile with All Three Credit Bureaus

Unlike your personal credit score which only relies on Fair Isaac Corp.’s standards for producing a FICO score, business credit is determined by several different credit bureaus such as Experian, Dun & Bradstreet and Equifax.

These bureaus collect data and calculate credit scores differently and you never know which bureau your supplier, lender or customer reports to, which is why it is important to keep your company’s information up-to-date with all three of these credit bureaus. All three bureaus allow business owners to create a basic profile of their company including financial statements in order to get the accurate picture of the credit score.

Use Trade Credit to Improve Business Credit Score

Maintain a good relationship with your suppliers and make all payments on time

If you use third-party suppliers to purchase inventory for your business, this could help improve your business credit score. Check with the vendors you use to see if they offer trade credit which lets businesses order supplies and materials without having to pay for them instantly.

Suppliers have different credit terms and depending on what type of accounts-payable relationship you have with them, they may require you to pay within a few days or weeks of making a purchase.

Your supplier will report your payments to the credit bureaus which will affect your credit score depending on how punctual you were in paying your suppliers. Set as many trade lines as you can in order to boost your score, even with small vendors who bring water or other supplies for your office.

Pay Creditors on Time

The biggest factor that determines your business credit score, no matter which bureau you use, is your payment history with creditors. It is important that you pay your bills on time, or even early, in order to prevent your credit score from suffering. Dun & Bradstreet prefers businesses with a long credit history and timely payments.

That, in addition with your personal credit score, can boost your chances of establishing perfect business credit. Credit utilization is also an important factor considered by bureaus before crunching out a credit score so make sure to spend within the credit card limit.

Only Choose Lenders That Are Able to Establish a Credit Line

Maintain a good relationship with your suppliers and make all payments on time

The longer your credit history, the better the chances of improving your business credit score – as long as you make all payments on time. As we saw earlier, credit lines established with vendors add to your credit history and improve your score. However, not all lenders provide the accounts payable feature to their clients, especially those with a bad credit history. Do your research and find lenders that offer good credit terms and are willing to lend to small businesses with bad credit history in order to improve your credit score.

Keep All Records Clean

When filing business information and reports with credit bureau, you will also need to provide all public records such as lawsuits, bankruptcies and judgements. All these negative records have a bad effect on your credit score and can make suppliers hesitant to do business with you.

Judgments are court rulings for debt lawsuits against a business which remain on your credit score for seven years. Bankruptcies, on the other hand, can haunt your credit score for 10 years.

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