If your business has any type of open credit, like a credit card, it probably has a credit score. A business credit score is essentially a measure of the company’s creditworthiness. In other words, a credit score tells the lender how likely this business is to repay its debt. Some business owners may not even realize that have a score but they should; it can make or break a business.
How is a Business Credit Score Calculated?
Business credit scores are calculated by credit reporting agencies which take into account outstanding balances, payment history, company size, how long you’ve been in business, how often you’ve borrowed, etc. Different scoring agencies, such as Experian, Equifax, and Dun & Bradstreet, have their own formulas to calculate credit scores.
How to Improve Your Business Credit Score
Having a good business credit score is important, especially if you have a new business. It helps increase the likelihood of getting a bigger loan, and on more favorable terms. On the other hand, a poor credit score can prevent your business from qualifying for a loan at all. Here are five ways you can improve your business credit score:
- Pay your bills on time. This is probably one of the simplest and most important things you can do to improve your credit score and decrease the risk of a low credit rating.
- Decrease your credit utilization ratio. This is the ratio of credit being used in relation to the amount of credit available to the borrower. The lower that ratio, the better off you are. To decrease the ratio, business owners should pay off balances, decrease credit card spending, and possibly even open a new line of credit (with the intention of not using it).
- Create credit accounts with suppliers. If you pay your bills on time and have good relationships with your suppliers, it’s a good idea to establish credit accounts so that you create a history of on-time, positive payments.
- Establish business credit with companies that report trades. Not all business creditors report their trade information.
- Check your credit report. Understanding where you stand is critical. The more you know, the easier it will be to take the necessary steps to improve your score.
If your company is seeking financing, contact ExpoCredit (www.expocredit.com), your go-to funding partner. We’ll take care of your financing needs so that you can focus on running your business.