The Five Factors of Improving Your Business Credit Score
Are you looking to improve your business credit score? A good business credit score is critical in being approved for trade credit and company financing. Similar to personal credit scores, a business credit score serves as a financial report card in determining credit worthiness.
A statistic-driven algorithm derived to assess risk calculates a business’s scores based on several factors. There are five common factors used to calculate a business credit score, although you should keep in mind each credit-reporting agency has its own scoring model.
The Five Factors Are:
1. Making Prompt Payments
One of the most important factors is paying bills on time. For the best credit score possible, be sure to pay invoices before the due date. The sooner payments are submitted, the better the impact it will be on your business credit score.
2. Creating Positive Trade References
Positive payment experiences with suppliers, vendors, or business partners can have an important impact on your business credit ratings and scores. Not all vendors and suppliers share data of payments with business credit-reporting agencies, but you can add trade references to your company’s Dun & Bradstreet (D&B) credit file. If you didn’t know this before, it takes a minimum of three trade references to generate a Paydex® Score with Dun & Bradstreet.
3. Maintaining a Low Credit Utilization Ratio
A company’s credit utilization ratio is the percentage of the company’s available credit used. It is calculated by dividing a company’s total outstanding balance on all credit cards by the sum of each card’s limit. This ratio plays a very important role in credit scoring models. Possible lenders view a business with a high utilization rate as a risky and unreliable to repay its debts. We recommend keeping your credit utilization low – preferably under 30%. Lenders want to see that your company can manage its debts well.
4. Increasing Your Credit Limit
One thing you can do immediately is increase your credit limits which will lower your credit utilization ratio and improve your business credit ratings. Often, after the first six months of opening credit accounts you can request a credit limit increase. Please keep in mind that some card issuers do timely reviews to determine whether or not a customer should be allowed an increase automatically.
5. Keeping an Up-to-Date Business Profile
Your business profile is like a resume you use when applying for credit. It includes your company’s banking and payment data as well as critical information that other firms, suppliers, and lenders utilize when deciding if they want to extend credit to your company and the terms that will apply; therefore, it is essential that your profile is accurate. Information such as the number of years in business, number of employees, and gross annual sales should be up to date.
Improving your business credit score and ratings can be one of the most important steps you can take as a small business owner to receive the most funds and the best terms available. For more information, visit sba.gov or give us a call we’d happy to discuss the success of your business with you.
Source Document: http://1.usa.gov/1PnFzW0
If you’d like to read more on this topic, see this article written by LendGenius.
