6 Strategies to Improve Your Small Business Credit Score
If you’re a small business, getting loan approvals or reasonable contracts can feel a lot like online dating. You’ve built up a beautiful profile, you’ve thought hard about what you want from a partner, you’ve put on your best outfit…and you’re getting ghosted left, right, and center.
You’re a smart, well-managed business, so what’s going on? Why does everyone keep bailing on you?
We may not be dating experts, but when it comes to financial partners, we’ve been around the block. Unfortunately, no matter how responsible you are, most financial ghosting comes down to your business credit score.
So how do you become the most eligible bachelor in the business world? Read on for six strategies to improve your small business credit score so your potential loan partners will be lining up at the door.
1. Start your business credit history
Taking out a business credit line isn’t necessarily at the top of your to-do list when you’re starting out. But you can’t improve something that doesn’t exist. Applying for business loans without a business credit history is putting the cart before the horse—you’re not going to get very far.
As soon as you register your business, run to the bank and live your Beverly Hills dreams. Open a credit line, grab a card with your business’ name, and spend, spend, spend (making sure to pay things off on time, of course)! Your personal credit cards won’t feel left out, trust us. Plus, having a business credit card makes separating your business and personal expenses far simpler.
2. Understand your credit score factors
Knowledge is always power—especially in business finance. If managing your personal credit score is graduating high school, then managing your business credit score is getting your PhD. There’s simply more to learn!
Business financials interact with more variables than personal financials, so they tend to be influenced by more things. No need to get overwhelmed—it just means you need to know and understand what those factors are.
A few of the most common business credit score factors include:
- Amount of time since opening your oldest financial account
- Your company size (by employee number and assets)
- Available credit limit(s)
- How much of your credit limit you use on a monthly-three month basis
- Number of late payments in the last two years
- Unpaid invoices
- Payment trends
- Financial account histories and consistencies
Just as with a personal account, some of these factors are simply in the hands of time. The only way to increase the amount of time since opening your account is to wait. However, many of these factors are within your control and it’s well worth looking into them to see if you have any blind spots.
3. Pay those bills and invoices on time
We know that managing a small business is about as easy as running a triathlon in molasses, but paying your bills and invoices on time is one of the easiest ways to keep your business credit score looking nice and shiny. It also goes a long way towards maintaining happy relationships with your vendors and suppliers, so it’s a winning strategy all around.
4. Track your credit report information
In a perfect world, you wouldn’t have to track your credit report information because its accuracy would be a given. However, we live in a world where we can put a man on the moon, but can’t get through a fiscal year without credit mistakes. Don’t worry, it infuriates us accountants as well.
Never take your credit score at its word. Inaccurate unpaid accounts or hard inquiries can sink your score to the bottom of the business ocean if you’re not diligent. Look through your detailed report and immediately contact your credit card company or credit reporting agency to correct mistakes. It’s much easier to be proactive and stop inaccuracies before they happen than it is to fix a broken score years down the line.
5. Work with customers and vendors with strong credit
Sustaining a strong business credit score is like running a group project. You might be a straight-A student, you might have everything perfectly ready to go, but your teammate can always show up on presentation day and spill Diet Coke all over your poster board at the last minute.
Unfortunately, your business credit score isn’t solely in your control. However, you can contain the madness a bit by keeping tabs on your customer and vendor credit. People and businesses with high credit scores are generally trustworthy and responsible (at least when it comes to money). By making sure your partners are on the up-and-up, you stand a much better chance at keeping your score where you want it to be.
6. Increase your credit potential
Do you remember the first time you found out that personal credit debt actually increased your credit score and you railed against societal finance rules? Yeah, it doesn’t get any better in the business world. Even if your financial ducks are perfectly in a row, a $100,000 credit line is always going to give you a better score than a $50,000 one.
So yes, you might not need that storage expansion or that brand-new copier model, but for the sake of your credit score—let’s pretend you do. If your score is stalled, a simple way to nudge it along is to either increase your credit line or take out a brand new one. You don’t need to max it out, you just need to appear like you might.
We know credit scores can be elusive and tricky, but your business deserves a solid financial start and a clear path towards credit improvement. Wherever you are in your small business journey, we’re here to help you navigate the whirling currents of business credit. Contact KYN today and we’ll help you build the life rafts you need to keep your credit score peacefully afloat.