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Small Business Credit: 5 Ways to Improve It

Small Business Credit

Establishing your small business’s credit history is imperative to the growth of your business. Signing up for your business checking accounts and credit cards is an important first step in building good credit. However, you may need to do more in order to bring your business credit score up to a level that will be beneficial to your overall growth.

Consider these 5 tips as you seek to improve your business credit score.

1. Analyze Your Credit Report

Once you have established a credit history for your business that is separate from your personal credit, you should check your report regularly – and not just the numerical score.

Make sure the information in your report is updated with your current business location, number of employees, and in-progress lawsuits or liens; if you’ve dealt with any money issues as of late, be sure to check back to ensure everything is still in order. All of these seemingly minor details can have an effect on your business credit, especially if there are mistakes.

2. Pay Your Bills on Time

This one is a no-brainer – but it’s also the easiest way to increase (or decrease) your credit score. Pay your bills on time every month; this includes not only your credit card payments, but also rent, utilities, and other vendors who consistently report late or delinquent accounts to credit reporting agencies.

If your monthly payment schedule is awkward – such as bill due dates spread unevenly across the month – you can negotiate to change your due dates to make it easier for you to pay on time. Take care not to overextend yourself by signing up for more payments than your business can handle each month.

3. Monitor and Prevent Fraud

According to the US Small Business Administration, fraudulent activity causes 15% to 30% of all commercial credit losses.

  • Place a fraud alert on your credit report with each credit bureau. These alerts will immediately inform you if someone is using your business information to fraudulently access your accounts or credit.
  • Put internal controls in place within your business that limits who has access to your credit accounts. U.S. businesses can lose up to 7% of their annual revenues to employee theft or fraud. Losses due to employee theft can damage your credit as well as your bottom line.

4. Consistently Report

When you’re late paying your electric bill, you don’t want your utility company to report it to credit agencies. However, if you pay all of your bills on time, you DO want that to be correctly reported to the credit agencies.

  • Check with all of your vendors, suppliers, and financial institutions to make sure that they are reporting your payments regularly. The more you fill your credit report with positive, accurate information, the more your credit score will improve.

5. Decrease Your Balances

Another important element used to determine your credit score is your account balances. More importantly, the ratio of available credit to used credit. If you maintain a high balance on your accounts – for example, you have a $500 balance on a card with a $1000 limit – that decreases your credit score.

In an ideal situation, you would want to pay off all your balances every month. In the real world, you should try to keep your balances below 30% of your total available credit.

  • One quick way to improve your balance ratio is to request a credit line increase. This immediately lowers the percentage of credit that is currently being used. However, if your request is denied, that denial can ping your credit score as well.

Having a good business credit score can help you secure financing, get better terms, and lower your credit card interest rates. Dun & Bradstreet claim to calculate your credit score based on 150 different factors, and some of these – such as the industry you’re in – are outside of your control. However, by making sure your report is accurate and filled with the right information, you can bring up your credit score and improve your business’s financial status.

Editor’s Note 2/7/2013: This article has been slightly changed since originally published to improve the relevance for the majority of small business owners.

About the author: Megan Webb-Morgan is a web content writer for ResourceNation.com. She writes about small business, focusing on topics such as business sales. Follow Resource Nation on Facebook and Twitter, too!

 

 


  • http://www.liveca.ca Josh Zweig, CPA, CA

    Great points Megan. While I know the article is focused on improving a business’ credit score as it is important to a business’ growth, I would just emphasize the fact that increased credit has to be considered in conjunction with proper cash flow management. Some business owners get excited at the prospect of increased credit limits, and thus increase spending without considering the timing of their cash inflows. This obviously leads to stretching the credit limits, which you then point out, will decrease your overall credit score. Doing a quick cash flow analysis will then lead to a better credit score in the long run – and of course, enable the business to grow and thrive in the future.

  • http://ResourceNation Jessica Sanders

    Hello Bruno – I am so sorry you feel that way, what advice is incorrect here? And what do you mean by, “Just Google forums on the topic of credit scores from who Ms. Morgan mentions in her article and read the horror stories.” ?

    Please do elaborate so we can be sure that it’s clear.

    Thanks for reading and giving your comments!


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