Now that you’ve learned about the basics of business credit and how to establish and build it, it’s time to dive into understanding and improving your business credit scores. In this article, we’ll discuss how business credit scores work, the factors that affect them, and practical tips to boost your scores. Let’s go!
How To Improve Your Business Credit Score
Business credit scores are numerical representations of your company’s creditworthiness. They’re used by lenders, suppliers, and other creditors to assess the risk associated with doing business with your company. There are several business credit scoring models, with the most common ones being:
- Dun & Bradstreet PAYDEX Score (0-100)
- Experian Intelliscore Plus℠ (1-100)
- Equifax Business Credit Risk Score℠ (101-992)
- FICO® Small Business Scoring Service℠ (0-300)
Higher scores indicate a lower risk, which can lead to better terms and lower interest rates on loans, lines of credit, and trade accounts. To learn more about the different business credit scoring models, check out our main hub article on business credit.
Factors That Affect Your Business Credit Scores
Several factors can impact your business credit scores, including:
- Payment history: Timely payments to suppliers, vendors, and creditors are crucial for building a strong credit profile.
- Credit utilization: The amount of credit you’re using compared to the credit available to you. A lower credit utilization ratio is generally better for your credit score.
- Length of credit history: The age of your business credit accounts, with older accounts contributing positively to your credit score.
- Company size and industry: Some credit bureaus consider your company’s size and industry when determining credit scores.
- Public records: Bankruptcies, liens, and judgments against your business can have a negative impact on your credit scores.
For a more in-depth look at these factors, refer to our article on business credit basics.
Tips to Improve Your Business Credit Scores
Ready to boost your business credit scores? Here are some practical tips:
- Pay your bills on time or early: Your payment history has a significant impact on your credit scores. Prioritize timely payments, and consider setting up automatic payments to avoid late payments.
- Keep your credit utilization low: Aim to use no more than 30% of your available credit at any given time. This demonstrates responsible credit management and can positively impact your scores.
- Establish diverse trade lines: Having a mix of different types of credit accounts (e.g., trade lines, credit cards, and loans) can help improve your scores. Follow our step-by-step guide on establishing and building business credit to learn more about setting up trade lines.
- Monitor your business credit reports: Regularly check your credit reports from Dun & Bradstreet, Experian, and Equifax to ensure accuracy. Dispute any errors or inaccuracies immediately.
- Limit credit inquiries: While it’s important to establish credit, too many hard inquiries in a short period can negatively impact your credit scores. Space out your credit applications and only apply for credit when necessary.
Understanding and improving your business credit scores are key to securing better financing options and building a strong financial foundation for your company. By implementing the tips outlined in this article and maintaining good financial habits, you’ll be well on your way to a bright financial future. Don’t forget to check out our other articles in the business credit series to deepen your knowledge and grow your business!