A poor credit score can have a negative impact on your business. It can affect who you do business with and how much credit you can get from other businesses. Follow our step by step guide on how to build your business credit score fast.
Why is a business credit score important and what are its benefits?
A business’ credit score gives you an instant measure of how creditworthy your company is. It is displayed as a simple number with 0 indicating extremely high-risk payers and 600 showcasing low-risk payers. Different suppliers will have different scales. For example, Experian uses a scale of 0-100 so be sure to double-check the scale with your credit report provider.
Check-it’s credit reports are provided by Graydon Insights who use a scale of 0-600 that is divided in increments of 60. For example, a score between 0 and 60 would flag an extremely risky payer and the rating would improve upwards from there.
A credit score is used by banks and suppliers to decide firstly, whether to give you credit and secondly, how much credit they should lend you. A poor credit score can limit your options when it comes to searching for credit and suppliers. Graydon suggests rejecting any requests from businesses with a score of less than 360, reviewing credit requests from businesses with credit scores of between 390 & 420 and accepting any credit requests above 420.
So, if your credit score is low you might be in trouble when it comes to trying to do business!
Why does your business have a poor credit score?
Usually, there will be signs if your business has a poor credit score, for example not paying bills on time or not sticking to agreed repayment terms. If you are unsure what your current business credit score is you can use Check-it to pull a recent credit report for your business.
A bad credit rating can also occur as a result of paying the absolute minimum on business credit cards each month. Another reason you might be subject to a poor credit rating is if any financial information has fallen victim to theft and fraudulent behaviours.
Regardless of why your bad credit rating has cropped up you may be wondering what you can do to improve it. Below we share 6 simple steps on how to improve your business credit score.
So here are our simple steps on how to build your business credit score fast.
Tips for building your business credit score fast
Incorporate your business or form an LLC
If your business is new or you haven’t already you should incorporate or form an LLC (limited liability company). Doing this makes your business become a legal entity with an established identity from its owner. This allows you to access credit on behalf of your business and should act as a blank slate that you can build on.
Establish a good relationship with your suppliers
If you work with the same suppliers on a regular basis and you have a good financial rapport with them, ask if you can open a credit account with them. Establishing good credit accounts over a long period of time will help to improve your credit score which will provide them with all the information they need to provide your business with credit.
If there are any changes to your business, financial or otherwise, be sure to inform any customers, lenders, suppliers, banks and directories like Companies House of the changes. Inconsistencies or inaccuracies in your information can make your business look untrustworthy and unreliable. This could negatively impact your credit score.
Make your payments on time
This may seem like an obvious step in building your credit score but it can’t be forgotten. Creditors will want to ensure that they can get their investment back on the agreed date. When a business fails to make its payments to a creditor this can lead to negative reports and the appearance of financial instability. A series of negative credit reports can hurt your business credit score and reduce your ability to get credit.
Limit your credit applications
You may think that many credit applications would be a good thing – more credit equals a higher credit score, but this isn’t often the case. Credit applications often require credit searches on your business which are recorded on your credit report. If you do too many credit applications within a short period of time it can suggest that a business is struggling to secure funding, which can scare off lenders and negatively affect your credit score. One way to get round this is to ask for a quote first before committing to a full credit application.
Monitor your business credit score
Your credit score can change for a number reasons so it’s important to always stay in the know. You can easily monitor your credit score and business’ financial standing using Check-it.
When it comes to improving your business credit score there is no one way that will instantly fix it for you. Instead, it’s better to take a multi-faceted approach where you identify what the cause of your low credit score is and then take multiple steps towards improving it.
One of the best ways to improve your credit score is to keep on top of your credit management process. Managing your credit is key to a well-functioning business, a healthy cash flow and good credit score. With Know-it you can easily credit check, chase for payment and get quotes for collecting your overdue unpaid invoices. This streamlined approach lets you manage your credit from one place helping you to stay on top of your incomings and outgoings, reduce your debtor days and increase your cash flow.
Ready to take the first step to being a credit management Know-it-all? Try Know-it today by signing up to a free 30 day trial.