Improving Your Business Credit

A good business credit score is important because it allows you to get funding for expanding and developing your business. In most cases, if you want to get a loan with a good rate, you must have a fairly decent credit score.

What Is Business Credit?

Business credit reflects a company's creditworthiness and is assessed based on its financial history and ability to repay debts. Unlike personal credit, business credit is linked to the Employer Identification Number (EIN) over the owner's Social Security Number (SSN).

Why It Matters

A good business credit score can open doors to various financial opportunities:

• Access to Financing: Lenders are more likely to offer favorable loan terms.
• Better Supplier Terms: Suppliers may provide goods on credit, improving cash flow.
• Lower Insurance Premiums: Insurers view businesses with good credit as lower risk.
• Enhanced Reputation: Strong credit can boost trust with clients and partners.

Ways to Boost Your Business Credit

Here are a few quick tips to help you improve your business credit score:

Tip #1: Establish a Solid Business Foundation

Establishing your business is one of the first steps in building business credit. This involves registering your business as a legal entity, such as an LLC or corporation, and obtaining an EIN for tax purposes. A dedicated business bank account is also worth considering for all your business transactions. Doing so not only helps you build business credit but also offers liability protection and lets you accurately track business expenses.

Tip #2: Keep a Positive Payment History

Timeliness matters. Strive to pay your business loans and credit card bills promptly. A consistent, timely repayment history on your existing debt helps you build trust with future creditors. Although late payments by a few days likely won’t impact your score negatively, making all payments on or before the due date is a good habit. That way, you can avoid late fees and growing interest rates over time.

Tip #3: Register with Business Credit Bureaus

Your company must be registered with business credit bureaus to build business credit. Ensure your business information is accurate and up-to-date with agencies like Dun & Bradstreet, Experian, and Equifax. Acquiring a D-U-N-S Number from Dun & Bradstreet is vital, as creditors and suppliers widely use it to assess creditworthiness.

Tip #4: Pay Off Your Debts as Fast as Possible

Did you know paying off your debt fast is key to building good business credit? Frequently, high debt levels mean your business has less breathing room if revenues and profits decrease. One of the best ways to keep your outstanding balances low is by making multiple monthly payments instead of waiting until you’ve reached the end of the month.

Tip #5: Ask to Increase the Credit Available

The credit utilization ratio is the amount of credit you use compared to the total credit available. A lower ratio is generally better for your score. If you have a solid payment history and have been with your creditors for a while, request a credit limit increase. Asking your creditor to increase your credit limit could quickly boost your score. Be cautious, though, as frequently asking for credit increases can sometimes signal financial trouble to lenders.

Tip #6: Diversify Your Credit Mix

This might include business credit cards, lines of credit, and installment loans. Different types of credit demonstrate your ability to manage various credit forms, showing lenders that your business is versatile and responsible. Ensure you can manage these different credit types responsibly to avoid overextending your business financially.

Tip #7: Avoid Frequent Credit Inquiries

While applying for credit when needed is important, frequent credit inquiries can lower your business credit score. Each time you apply for new credit, a hard inquiry is recorded on your credit report, which can temporarily decrease your score. To minimize the impact, space out your credit applications and only apply for credit when necessary.

Tip#8: Establish Trade Lines with Suppliers

Ensure some suppliers report your transactions to the business credit bureaus. Vendors have no legal obligation to report this information to business credit bureaus. So, if it’s a smaller supplier, they may not report the information at all. If you want to establish credit, it’s up to you to ensure the supplier you work with reports your transaction information.

Tip #9: Seek Professional Advice

If you're unsure how to improve your business credit, consider working with a financial professional. Accountants, financial advisors, credit counselors, and business credit experts can provide valuable insights and strategies tailored to your business needs. You will even gain clarity on complicated financial issues and other matters related to credit management.

Main Takeaway

Improving your business credit requires diligence, responsible financial management, and strategic planning. You can build a strong credit profile by understanding the importance of business credit, establishing your business legally, and maintaining timely payments. Seeking professional advice can further enhance your efforts, ensuring your business has access to the financial resources it needs to grow and succeed.

Are you ready to take control of your business credit? At NCH, we are committed to helping businesses thrive. You can build and maintain a healthy business credit profile by leveraging our expertise, ensuring your company is well-positioned for future opportunities.

To learn more about your business credit score, please call us at 1-800-508-1729!

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.