Some business owners put in long hours every day to guarantee the success of their operations. When trying to grow their companies, business owners often put in extra time and effort, but they may sometimes forget about their businesses’ credit ratings while dealing with customers, suppliers, and marketing.
One of the most crucial considerations in gaining access to capital to establish, sustain, and expand your business is its credit rating. There’s more to your business’s credit rating than just a number. Credit scores are used by financial institutions, vendors, and others to effectively assess the financial stability of your businesses.
Stronger credit scores make it possible to qualify for business loans at lower interest rates and with more favorable terms. However, if your credit score is low, you may be charged more for the same loan program or perhaps be denied for financing entirely.
No matter how crucial it may be, a credit score isn’t permanent. There are several actions you can take to increase your business’s creditworthiness. Here are some strategies you can follow:
1. Choose The Right Vendors
Sadly, not all vendors or lenders report customer payment information and credit history with the major credit reporting agencies like Equifax and D&B. Businesses with tens of thousands of customers are more likely to have a system set up to report prompt payments to the various credit bureaus.
Small businesses like mom-and-pop shops that are just starting out or only serve a limited market are less likely to have formal reporting procedures in place. While you’re diligently working to improve your credit, you should focus on partnering with vendors like this one and who’ll most likely record your timely payment.
If you have already a vendor and you have a strong track record of paying your bills on time, you can ask your vendors and suppliers to include that information in your credit report. The results of this can be beneficial to your credit score. If your current vendor doesn’t record payments, consider switching. Supplier and vendor feedback boosts your company’s creditworthiness.
2. Get Your Employer Identification Number
Like a person’s Social Security number, the government will utilize your employer identification number (EIN) to uniquely identify your business. When it’s time to file your business taxes at the end of the year, your EIN will be a crucial piece of information.
After setting up a business legally, you’ll need a corporate ID number to submit taxes, set up a business bank account, and apply for business permits.
3. Demonstrate Good Finance Management
Some new business owners probably won’t see the value in establishing business credit. When starting off, it’s common to finance a business with your own personal credit. Even if you don’t think you need business credit now, you might in the future when your business grows.
Do you agree that it’s preferable to prepare your funding source before you actually need it? Opening business credit cards is a good first step toward creating a credit history, a crucial aspect in determining a business’s creditworthiness. Even if your organization has no immediate need for it, use it carefully to demonstrate solid finance management.
4. Stay On Top Of Your Bills
It’s basic but worth reiterating—nonpayment of payables and credit card balances can hurt credit ratings. Make on-time payments to your creditors to improve your credit rating and offer you an edge when applying for new loans.
Know that repeatedly missing payments is a surefire method to damage a business’s creditworthiness. Keeping a calendar with reminders of upcoming deadlines can be a huge time saver.
5. Avoid Court Rulings
To boost your business credit score, avoid legal action. If you owe money or if they think you do, you may find yourself in this position.
A county court judgment, commonly abbreviated CCJ, may be filed against you by dissatisfied lenders or suppliers. You’ll have time to reach a settlement and have the ruling removed from your record. If you don’t, it might hurt your credit score.
A CCJ on your credit record tells potential lenders you may not pay back your obligation on time, if at all. First, avoid trouble. If you do, resolve the disagreement swiftly so it doesn’t stay on your credit record.
6. Look For Errors And Fix Them
When compared to personal credit reports, business credit reports are more likely to contain errors. The primary reason for the increased likelihood of errors is that the data pertaining to business credit is far more fragmented, making it much simpler for information to become confused with one another.
Checking your business credit reports for inaccuracies is a needed approach since an error could affect your creditworthiness or signal fraud. You can dispute erroneous credit bureau information.
Maintaining a high credit score for your business is beneficial. You can keep your business credit in good standing and ready to take advantage of any growth opportunity by following these simple steps.