Entrepreneurs running small businesses frequently find themselves in need of external capital to bolster their growth. However, eligibility for a business loan or other financing avenues hinges on having a robust business credit score.
A business credit score is a valuable metric for lenders, creditors, and suppliers to determine a business’s ability to meet its payment obligations punctually. Gaining knowledge on enhancing your business credit score (and sustaining it at a high level) could allow you to obtain larger loans, benefit from lower interest rates, and even negotiate flexible repayment terms. Here’s a summary of what constitutes a good (low risk) or poor (high risk) business credit score.
Avoid Canceling Your Old Corporate Credit Cards
Your credit history heavily influences your credit score. Maintaining a longstanding credit card or other credit account demonstrates consistency and the confidence that suppliers and vendors have in your enterprise.
The more senior the credit account, the more significant its effect on your credit score. Terminating an old credit card wipes out the related credit history, meaning this history can’t be factored into your credit score calculation. If you possess several business credit cards and wish to terminate some, it’s always suggested to shut down the most recent ones to limit the effect on your credit score.
Maintain a Balanced Combination of Credit Types
Credit rating agencies consider the nature of your debts while calculating your credit score. Possessing an excessive number of credit cards can potentially harm your score, particularly if you’re using one card to settle the debt on another.
Likewise, concurrently opening several credit accounts can influence your credit score. Excessive credit inquiries with the credit bureaus can also have the same effect. To prevent damaging your credit score, contact the best tradeline companies to apply only for credit that you are confident of getting approved for and genuinely need. Avoid applying for multiple credit facilities simultaneously.
Ensure You Submit Your Payments on Time
Enhancing your business credit score primarily involves punctual bill payments. Your credibility to lenders and suppliers might be undermined if you have a history of delayed payments. What’s worse, entities like utilities companies and suppliers, to whom you owe money, may report your tardiness in payments. It’s challenging to rectify a poor credit score, so it’s imperative to adhere to your payment schedules as strictly as possible.
To guarantee on-time payments, you could consider strategies such as setting up alerts on your electronic devices, initiating automatic payments, and dedicating certain days of the week or month for settling bills. By making prompt payments, you can also maintain a favorable standing with your suppliers, which is vital as they could report your payment behavior, directly influencing your credit score.
Spend Wisely
When it comes to prudent financial management, particularly in enhancing your business credit score, caution should be your guiding principle. The obligation of a business credit card lies on the shoulders of a responsible owner.
This may appear challenging because business growth necessitates investment. However, it’s crucial not to invest without conducting proper research. If you’ve gained approval for a business credit card, ensure you spend wisely. A sensible approach to utilizing a credit card or credit line is to begin by paying for basic, foreseeable expenses, such as utility bills, which you are confident you can repay on or before the deadline.
Endnote
Maintaining a favorable business credit score allows your firm to secure credit lines, which can be utilized to fund your operations. A high credit score typically results in more advantageous payment conditions and lower interest rates.
