For most small business owners, active management of the business’ creditrating is not placed high on the list of priorities. That’s because a big chunk of entrepreneurs have the ideas, passion and drive to establish a successful business, but lack the financial savvy to help it grow and reach new heights.
In this post, we shall be looking at the steps that you need to take to ensure that you have a good business credit score. Credit Works recommends:
- Perform a credit check on your business. Check with popular credit bureaus to find out whether your business has an active business profile. This can be done by calling the bureaus or checking through their websites. If your business is not registered in any of the bureaus, open a business account and request credit with it (usually with a credit card) to create a credit profile.
If your business already has a credit profile, review it thoroughly to ensure that all the information entered there is accurate. If it’s not, make sure changes are made as soon as possible to reflect your current position.
- Establish business credit history.Avoid using personal credit and finances and instead put expenses in the business’ name. Loans and purchases by the business should be taken, made and paid by the business through its own commercial bank account. Make sure that all vendors and suppliers report your transactions to credit bureaus to accumulate more positive data.
- Pay your bills on time. Paying your bills before they are due helps improve your credit score. Automate payments for recurring bills so that you never forget. The earlier you pay the debt relative to the deadline, the more your credit score will benefit. Don’t wait until the last minute, pay your debts as soon as you can.
- Continuously monitor your credit profile and keep it current. Three months are enough for your business credit status to change significantly. Monitoring your credit profile ensures that you are aware of all the changes that are happening so that you can take corrective measures before they take a toll on your business credit score. Also update your information such as changes in the business phone number, changes in the size of the workforce and business location.
- Keep your credit utilisation Credit is a last-resort solution that should be used only when completely necessary as over utilisingit can have a negative effect on your business credit score. Keeping your credit utilisation ratio below 30% demonstrates that your company is good at managing debts which makes it less of a risk.
Benefits of managing business credit
By playing an active role in managing your business’ credit rating, your business will benefit in the following ways:
- More financing with better terms. A good credit rating will ensure that your business can access financing when it needs it and at favourable terms – such as reduced interest rates on bank loans.
- Favourable termsfromSuppliers will look at your business credit before deciding on the amount of credit to extend to your business. Good business credit will help you acquire more supplies and at better terms freeing up money for other things.
- Business identity theft prevention. By actively managing your business credit profile, you’ll be able to identify any incorrect or fraudulent information so that you can get the problem fixed promptly before it affects your business’ reputation.