How Small Businesses Can Grow Their Credit Scores

credit card chip

Every business dreams of scaling up. The best way business owners can do this is to get the upper hand over their financial resources. No business wants to get stuck in a financial rut, so having a reliable financial backup plan is crucial. This is where credit cards and scores come in.

If you have had a house mortgage, property foreclosure, or car loan, then you’re quite well-acquainted with your own credit rating. You know you have to pay your debts on time, avoid foreclosure, and stay within your limit, prompting you to seek the advice of real estate experts or foreclosure lawyers should problems arise. This is also how it works with business credit scores.

It depends on what kind of business you have. Lenders will look at your personal credit rating when you’re a sole trader. However, if you have a limited company, you have the ability to build an independent credit score for your business.

How does your business particularly benefit from having high credit scores? With good scores, you can save a big deal since you may be granted loans that have lower interest rates. Having a low credit score, on the contrary, can lead to your having loans with higher interest rates.

What Affects Your Credit Score?

The FICO Score model is the most commonly used credit scoring method with scores that range from 300 to 850. A poor score means having 579 points and under, while a good score ranges between 670 and 739. A very good score is 740 to 799. Lastly, an exceptional credit score is 800 and above. You might want to have a score of 700 above using this scoring model so that you will have a good credit score in any lender’s eyes.

talking to credit agent

Take a look at these factors that can affect your credit scores:

  • History of payment: This is one important factor in scoring your credits. Even just one missed or delayed payment can negatively affect your scores. Lenders will want to ascertain if you are a good payer or not.
  • Owed amount: Your credit usage will greatly affect your credit scores. This shows how much available credit you’re using. Lenders will not want to grant you a loan if you use more than 30% of your available credits.
  • Length of having credit: This takes up 15% of your score, including how long you have had your oldest credit account, your newest credit account, and all your accounts on average. Take note that you’re likely to have higher scores when you have a longer credit history.
  • The number of credits you applied for: Any time you request a new credit, this is recorded in your credit file for two years. When you make inquiries for a short time, it only means your business’s finances are dipping low, leading to your being denied new credit.
  • A mix of credits: This means you have a variety of credit accounts. The more diverse your credit account portfolio is, the higher your scores are.

Quick Ways to Improve Your Business’s Credit Scores

Knowing the benefits of having high credit scores, you will want to keep it that way and strive not to be a debt risk. Here are quick ways you can grow the credit score of your business:

  • Credit report: Begin with knowing where you stand. Know how much your credit score is so you can start working from there.
  • On-time payment: This is the easiest way you can improve your credit scores. As mentioned, just one delay of payment can already negatively affect your score.
  • Reduced use of available credits: Lenders will look at the ratio of the credit you use to the number of your available credits. The rule of thumb is to maintain the ratio under 15 percent. To make that happen, you should pay all your balances, increase your credit limit, grow your available credits, reduce your spending using your credit card, and pay your bills more than once each month.
  • Positive payment experiences: Add more positive payment records to your credit file. You can add this manually through your credit-reporting agency. Take note that your scores increase when you have a more positive payment history.
  • Supplier credit account: If you have a good payment history with certain suppliers, you can create a credit account with them. This is one way you can add positive payment records to your credit file.
  • Proactively dispute errors: When you see any potential report errors on your part, make sure to dispute them. Remember that unpaid accounts or hard inquiries can significantly reduce your score.
  • Delete negative accounts: When your debts go to collections, make sure to ask your credit agency to delete your history of negative accounts.

Whether you are a new or experienced business owner, high credit scores can greatly help your business as they allow you access to loans with the ideal terms. Expanding your business will require you to borrow more money, so you should keep your credit scores as high as possible.