How to Improve the Credit Score of Your Business?
As a business, are you having trouble getting a bank loan? Or did the bank agree to give you a loan but charge exorbitant interest rates or provide fewer loan options? Or did they require substantial security, such as real estate, or did they reject your loan application?
On scrutiny, the reasons could be bad credit history in your business credit score report. While you cannot fix the score immediately, knowing why it happened can help you take systematic steps to improve and correct it over time.
Why Is My Business Credit Score Low?
It’s crucial to comprehend why the business’s credit score declined before attempting to restore it. The causes may be particular to your business and not universal. There could be many reasons for a low credit score, from overdue credit repayments to irregular payment habits. Factors that can lower your business credit score are:
- Late payments: If you consistently pay your bills late, it can negatively impact your credit score.
- High credit utilisation: If you use a large portion of your available credit, it can be a red flag to lenders and negatively impact your credit score.
- Lack of credit history: If your business is new or has a short credit history, it can be more challenging for lenders to assess your creditworthiness, which can lower your credit score.
- Negative information on your credit report: Detrimental information on your credit report, such as bankruptcies or tax liens, can significantly lower your credit score.
- Inconsistent or incomplete information on your credit report: If there is conflicting or incomplete information on your credit report, it can make it harder for lenders to assess your creditworthiness, and this can lower your credit score.
- High debt levels: If your business has a high level of debt relative to its assets or revenue, it can be seen as a risk to lenders and lower your credit score.
These financial habits signal high risk to lenders and lead to a declining business credit score over time.
What To Do if Your Business Credit Score Is Low?
If you're wondering how to improve business credit score, it starts with understanding the core factors that affect them: payment habits, credit usage, and report accuracy. Obtaining the required working capital at competitive rates and winning contracts with better terms are two advantages of having a good business credit score.
Vendors and suppliers may also review your credit report and offer terms based on that information. If your business’s credit score is low, you should prioritise improving it. Improving your business credit score requires discipline and consistent financial practices that build lender trust. Here’s how to improve your credit score:
Be regular with your EMIs and credit card payments
Pay all bills on time and do not miss your EMIs and credit card payments. Paying all your vendors and suppliers within the agreed time boosts your business credit score. The longer the invoice is overdue, the lower the credit score.
Exercise caution when using credit
It is crucial to exercise caution and actively work on improving your credit score by paying bills on time, keeping credit card balances low, and regularly monitoring your credit report.
Keep your debt levels & credit utilisation ratio in check
You can build your credit score using a credit card. However, it would help if you kept the credit utilisation ratio below 33% per month. Maintaining a lower ratio signals responsible usage and helps increase credit score steadily.
Use flexi-loans for short-term operational costs
Flexi-loans, also known as a line of credit or revolving credit, allow you to meet your short-term needs while having flexible repayment options to suit your cash flow. These short-term solutions provide financial flexibility without overburdening repayment capacity. They help increase credit score over time.
Monitor your business credit report regularly
Regularly checking your business credit reports can help you identify and address any issues that may negatively impact your score.
Verify the credit report for accuracy
Check your credit report at regular intervals for data accuracy and report any errors. It usually takes a month to verify and correct any errors. Once the mistakes are rectified, you will see an improvement in the business credit score.
Accurate reporting is crucial for maintaining a healthy business credit score and avoiding unexpected rejections.
Do not mix business and personal finances
By keeping the personal and business accounts and credit cards separate, you can avoid affecting your credit score due to personal finances.
By implementing these simple yet effective steps, you’ll understand how to improve your business credit score and boost long-term financial credibility.
Final Thoughts
From vendor agreements to loan approvals, a strong business credit score is a competitive asset in today’s business landscape. It’s important to monitor your business credit score and take steps to maintain a strong score, as it can significantly impact your ability to secure financing and other business opportunities.
Take charge of credit habits today to increase credit score and open doors to new business opportunities tomorrow.
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