5 Factors that Can Affect Your Business Credit Score

As a startup owner, or someone planning to start a business, your business credit can become your ally as you grow your business. It is important for business owners and entrepreneurs to know the meaning, importance, and factors that can affect your business credit score.

In this article, I’ll talk to you about several factors can affect your business credit score.

What is Business Credit?

Just like your personal credit scores, your business credit can determine your ability to borrow money, supplies or services. Banks and other businesses can also use your business credit to consider you a good business partner. Meaning, a good business credit profile can tell everyone you’re a good investment, whether in funding or affiliation.

There are different business credit scoring agencies like Equifax, Experian and Dun and Bradstreet. Different agencies have different scoring methods but the scores are typically a value between 0 to 100 (100 being the highest). As a rule of thumb, maintaining a score of 80 and above is good for your business.

What Factors Affect Your Business Credit Score?

There are several factors that can prevent small businesses from having a quality credit score. Here are some factors that can affect your business credit and some tips on how you can improve your score.

1. Payment History

Your payment history is one of the most important factors that affect your business credit profile. Payment delays decrease your business’ creditworthiness.

Tip: Pay your loans before their due dates. Paying on time is fine, but paying early is always the best. This does not only improve your credit score, it also helps create a good relationship between your business and creditors.

 

2. Public Records

Negative public records on your business profile can certainly affect your credit score. Critical records can include tax liens, civil judgments, bankruptcies, and collections.

Tip: Keep your records clean. You can do this by adhering to regulations and responsibilities as a business.

 

3. Reports

A positive report from credible agencies like Equifax, Experian or Dun and Bradstreet can ultimately improve your credit profile. Business credit scores are always open to fluctuation. There can also be changes you’re unaware of which can affect future dealings.

Tip: Order your credit reports and monitor them regularly. Contact the reporting agency for any inaccurate information to have it removed or corrected.

 

4. Credit Applications

Multiple credit applications in a short period of time make a business seem desperate for a loan. This provides a negative indicator that your business is declining.

Tip: Keep your applications to a minimum and keep your debt levels on the low.

 

5. Credit Utilization Ratio

This is the percentage of a business's total available credit which you’ve already used. It measures how much your business owes a credit line in relation to their limits. Maxing out your lines can cause a red flag.

Tip: Maintain a credit utilization ratio between 20% and 30%. Keep tabs on how much you are charging on your credit line. If you have more than one credit account, spread out your balance to avoid a high credit utilization ratio. You can also ask for a credit limit increase.

 

Your business credit serves as the lifeline of your business. It is one of the integral factors that can affect your business growth. Check your business credit score and monitor it. It helps in building a strong foundation for your business. Keep in mind the factors that affect your credit score and the proven effective tips I have provided.

As a business owner, you have the power to cultivate your business to success. Equipped with the right knowledge, principles, and mindset, you can be powerful enough to succeed. Check out my blog for more informative and motivational resources to help you achieve business and personal financial success.