There may be times in the life of your company when your business credit isn’t good or your credit file is too thin—that is, not well established. This limits your ability to qualify for loans and funding or get good interest rates as your company grows. As a small business owner, there are steps you can take to fix bad credit scores or build up a good one:
1) Verify your business credit rating. Get copies of your credit report from each major credit bureau and check for errors. If you find mistakes, or the report reflects an outdated credit history (yes, this happens), request that your score be updated. The credit bureau will need copies of relevant invoices, payments or financial statements and up to 30 days to update your file.
2) If your business has negative marks on its credit history, you may be able to negotiate with past suppliers or vendors to remove them. You can offer to place new orders or make regular on-time payments for existing suppliers. Suppliers are also business owners and they may be willing to help you.
3) Pay your bills on time. Your business credit score is essentially a history of timely payments. If you are going to be late or miss a payment, talk with your creditors. They may be willing to allow late or partial payments without reporting them.
4) Make sure your suppliers report on-time payments. Not all of them do and you’re missing a chance to build or improve your credit score if they don’t. Consider switching to vendors who regularly report payments.
5) Keep your business and personal finances separate as your company grows. You may need to use personal credit to establish a company but eventually you want to keep personal and business credit separate. Mixing the two can stop a business from building a solid credit history. Without this history, you may miss out on funding or pay higher lending rates.
Check with suppliers about giving you trade credit. Companies that extend trade credit to buyers are giving an interest-free extension of payment terms which can help your business cash flow. For example, you may be able to negotiate paying after 30 or 60 days—without penalties or interest—instead of paying on receipt of goods, or extend a current net 30 days to net 60 days.
6) Stay under a healthy debt threshold. If you have open lines of credit, a revolving loan or business credit cards, try to keep your credit utilization rate around or under 30%. This rate shows how much debt your business is carrying compared to available credit. If your debt is high, future lenders may refuse you a loan or increased credit as they don’t think your business can repay it.
