Small business owners are hard pressed for time and funds. Hence, they tend to neglect their business credit score. Most of the small or medium-sized enterprises are busy formulating creative and innovative marketing ideas. They’re working on customer relationship strategies to take their business to the next level and can’t find the time to repair or increase credit score.
Many new and novice entrepreneurs are not aware of the fact that business credit score is different from that of their personal credit score. The worthiness of your business is judged using the three-digit score and the widely used business credit score model is Paydex score. Scores range between 0 to 100 with a 100 being the ideal score but anything about 75 is still considered to be good.We’ll show you some ways to increase credit score today.
Importance of a good business credit score
- Obtaining business loans become easier– Medium sized business loans get approved if your personal credit score is good. However, if you want a larger loan to expand your business, then your business credit score should be above 75.
- Keep business and personal finances separate– If your business is financed under your name and it fails where you have to file for bankruptcy, it will affect your personal credit score and also stay on the credit report for a decade. Therefore, it’s wise to keep the business and personal finances separate.
- Get best rates and terms– Higher the business credit score, better the rates and terms for not just loans but insurance for your business.
Improving your small business credit
- Limit the credit usage on the business credit card– The common metric of business credit score is the debt-equity ratio. This is the measure of the firm’s finances in relation to the amount of finances it’s currently utilizing. If a small business owner has a low business credit score, it’s wise to keep the credit usage below 30%. Try making several payments on the card over the course of a 30-day billing period. Additionally, avoid putting debt on a single card.
- Pay your bills on time– It’s a good habit to pay the bills before or on the due date. The late fees can be avoided and it will not be reported to the credit bureau. If you have to pay your suppliers, clear the dues fully or partially and ask them to send a report to the business credit bureaus. Also make a follow up to see if they have sent the report to the credit bureaus. This update will help boost your score.
- Use your credits– If you have only one or two credit accounts, it may reflect negatively on your credit report. Therefore, use credit but remember it’s not free money.
- Keep checking your credit score– It’s wise to keep track of your business credit scores. You can access the reports from the various bureaus such as Dun & Bradstreet, Equifax, and Experian. Check the business credit report for any incorrect information.
Last but not the least, keep business finances and personal finances separate. So there is no worry of losing your personal finances and assets if your business fails.
