A good business credit score is vital in being approved for trade credit and company financing. Just like personal credit scores, a business credit score serves as a financial report card in determining creditworthiness. A statistic-driven algorithm derived to assess risk calculates a business's scores based on several factors. Even though each credit-reporting agency has its scoring model, there are five common factors used to calculate a business credit score.
Make Prompt Payments
Paying bills on time is one of the most important factors. For an optimal credit score, pay invoices before the due date. The sooner payments are remitted, the better the impact it will have on the business credit score. For example, a business that pays its bills on time will have an 80 D&B Paydex® Score, while one that pays 30 days sooner than the due date may have a 100 D&B Paydex® Score.
Create Positive Trade References
Positive payment experiences with suppliers, vendors, or business partners can have a great impact to your business credit ratings and scores. Not all vendors and suppliers share data of payments with business credit-reporting agencies, but you can add trade references to your company’s Dun & Bradstreet (D&B) credit file. If you didn't know this before, it takes a minimum of three trade references to generate a Paydex® Score with Dun & Bradstreet.
Maintain a Low Credit Utilization Ratio
A company’s credit utilization ratio is the percentage of the company's available credit used. It is calculated by dividing a company's total outstanding balance on all credit cards by the sum of each card's limit. This ratio plays a very important role in credit scoring models. Possible lenders view a business with a high utilization rate as risky and unreliable to repay its debts. Keep your credit utilization low - preferably under 30%. Lenders want to see that your company can manage its debts well.
Increase Your Credit Limit
Increasing your credit limits is one thing you can do immediately. Doing so lowers your credit utilization ratio which will in turn improve your business credit ratings. Commonly, after the first six months of opening credit accounts, you can request a credit limit increase. Please remember, that some card issuers do timely reviews to determine whether or not a customer should be allowed an increase automatically.
Keep an Up-to-Date Business Profile
Your business profile is like a resume you use when applying for credit. It includes your company’s banking and payment data as well as critical information that other firms, suppliers, and lenders utilize when deciding if they want to extend credit to your company and the terms that will apply; therefore, your profile must be accurate. Information such as the number of years in business, number of employees, and gross annual sales should be up to date.
Improving your business credit score and ratings can be one of the most important steps you can take as a small business owner to receive the most funds and the best terms available. For more information, visit sba.gov.
