How to Maintain a Good Company Credit Score?

Maintaining a good credit score is an essential yet often overlooked aspect of managing a business. A business’s credit report is an excellent indicator of the establishment’s financial health and is what prospective lenders refer to when assessing an organisation’s creditworthiness.

Small and medium-sized businesses rely on finance from banks and non-banking financial companies (NBFCs) to help them grow. Whether you need funds to purchase new equipment, update existing infrastructure, or expand your business, a healthy credit score is instrumental in securing a loan to help you achieve your objective.

Know how to maintain a stellar credit score for your business! In this article, we’ll share some expert tips to help you navigate the ups and downs of credit management, including the common obstacles you might encounter on your journey to financial success.

Tips to Maintain a Good Company Credit Score

Outlined below are a few valuable suggestions from experts on how to maintain a good credit score:

  • Pay All Business Bills on Time

    Paying all dues on time is an excellent way to maintain and improve a business’s credit score and ensures that future loans or lines of credit will be quickly approved. These include loan EMIs, credit card bills, and all other arrears. Aside from positively affecting the company credit score, consistently timely payments also help build strong relationships with vendors and other creditors.

  • Maintain a low credit utilisation ratio

    Maintaining a low credit utilisation ratio is crucial for keeping your credit score healthy. Your credit utilisation ratio is the amount of credit you currently use compared to your available credit. A low credit utilisation ratio shows lenders that you are responsible with credit and can manage it effectively. On the other hand, a high credit utilisation ratio can indicate that you are relying too heavily on credit, which can negatively impact your credit score.

  • Manage Debt

    Businesses need to have cleared pending debt before applying for newer business loans. Managing business debt in this manner is a significant part of maintaining a healthy credit score. Failing to do so will negatively impact the score, resulting in difficulty securing lines of credit in the future.

  • Avoid Cancelling Old Credit Accounts

    A business credit score is determined by its credit history. A long credit history that spans several years indicates financial stability and highlights an organisation’s competence in repaying debts on time. Older credit accounts have a much more significant impact on credit scores. Closing long-standing accounts results in losing a business’s credit history; hence, this history is not considered when calculating the business’s credit score.

  • Periodically Monitor Your Credit Reports and Score

    Business owners must regularly monitor their organisation’s credit reports and watch out for red flags, errors, and inconsistencies. Mistakes can happen, and inaccuracies in a business’s credit report can severely damage its credit score. Even if a company has consistently made timely payments to its creditors, a simple clerical error or missing paperwork can result in the loan remaining on the lender’s books for years, negatively impacting the business’s credit reports. This is why it is essential to regularly analyse and review a company’s credit report and promptly dispute any inaccuracies with the credit bureau in order to have errors corrected as soon as possible.

Overcoming Challenges to Maintaining a Good Company Credit Score

While the above tips can help maintain a healthy business credit score, business owners may face certain challenges when implementing these methods. Below are some of the challenges that might crop up and the strategies for overcoming them:

  • An Inability To Maintain a Low Credit Utilisation Ratio

While businesses may aspire to keep their credit utilisation ratio low not to affect their credit scores, this can be challenging. The following strategies can help business owners with  difficulty maintaining a low credit utilisation ratio.

  • Reduce Spending

    Decreasing your spending is the easiest way to maintain a low credit utilisation ratio. Businesses that regularly need to make large purchases should consider spacing these out or using a debit card instead of a credit card.

  • Increase the Credit Limit

    Requesting a higher credit limit is another smart way to reduce your business’s credit utilisation ratio. Of course, the final decision to increase your credit limit lies with the bank or lending institution. This may also lead to a credit inquiry which may temporarily reduce your company’s credit score, but this will increase once the higher credit limit is approved.

  • Spread Expenses Across Multiple Credit Cards

    Using multiple credit cards can help business owners manage their credit utilisation ratio effectively. Spreading expenses across various credit cards can ensure a low credit utilisation ratio across all the cards, which is beneficial for a good credit score.

  • Don’t Use All the Credit Cards at Your Disposal

    Maintaining a few credit card accounts with zero outstanding balances is another easy strategy to obtain a low credit utilisation ratio. If possible, avoid using one or two of your credit cards over the next few months. Your overall available credit limit will automatically increase, lowering your business’s credit utilisation ratio. However, overspending on other credit cards defeats the purpose. Assess your overall credit limit, estimate 25% to 30% of it, and then plan your purchases appropriately.

  • Closely Monitor Your Business’s Credit Reports

    As mentioned above, errors or oversights in a business’s credit reports can drastically affect the company’s credit score. Watch out for inaccuracies impacting your business’s credit utilisation ratio, and immediately report them to the credit bureau to rectify them.

  • Consider Diverse Financing Options

    Rather than relying solely on credit cards, consider other financing options like business loans or lines of credit when making large purchases or investing in the business.

  • Difficulty Paying Dues on Time

    Consistently paying business bills on time is critical to maintaining a healthy company credit score. Refer to the following tips to ensure timely payment of dues.

  • Create a Budget

    Creating a well-thought-out budget for your business is the first step in organising your finances. It helps you keep track of all business expenses and ensures you have the finances available to cover all monthly bills and dues.

  • Set Reminders

    Adopting a simple calendar or reminder system can go a long way towards ensuring timely payments every month. Set up automatic bill payment systems with your bank or credit card provider to eliminate the chances of a missed payment.

  • Prioritise Bills

    Sort and prioritise bills by importance and their due date. Paying business-critical bills must be given priority over all other business expenses.

  • Communicate With Vendors

    Occasionally, extenuating circumstances prevent a business from paying vendors on time. In such cases, it is prudent to negotiate a payment plan or extension with the vendor to avoid such a lapse from affecting your company’s credit score.

  • Regularly Monitor Credit Reports

    Once again, actively monitoring your business’s credit reports can help spot errors and have them rectified before they result in lowering your company credit score.

The Bottom Line

While running a business includes several responsibilities like addressing employee issues, managing income, overseeing expenditure, and conducting marketing activities, business owners cannot afford to overlook their company credit score. It is crucial to perform regular business credit score checks to scrutinise credit scores and rectify errors, if any.

Elevate your business to the next level with CRIF’s annual credit report package! By subscribing, businesses gain access to regular credit report downloads that will help them stay on top of their creditworthiness and make informed decisions that benefit their bottom line.