As a small business owner, you have so much on your plate that it can be difficult to focus on your business credit report. Unlike your sales numbers or your expenses, it’s not something that comes up on a daily basis.
On the other hand, when the time does come to care about your business credit report—like when you’re applying for a loan, or want to qualify for an elite business credit card—you don’t want to be scrambling to improve your score at the last minute. That’s why credit repair services (some of which are scams) exist.
But you don’t need to pay someone to improve your business credit. In fact, boosting your business credit score doesn’t take that much work at all. Many of the things you do as a responsible business owner will improve your score. It can be helpful to know what those things are, so you can continue doing them, or do them better.
Here are six easy things you can do as a business owner to boost your credit score. Keep them in mind as you run your business—it’ll pay off in the long run.
1. Continue to exist
Here’s a good one: Stay in business! One of the most important aspects of credit history, personal or business, is the length of that history. The longer your business stays afloat, the better your business credit score. Lenders also consider time in business as one of the most important factors when deciding whether to approve you for a loan.
It’s important to note in order to start building a business credit score, you need to establish a business credit report. Sole proprietors who freelance, use their personal credit card for expenses, and otherwise don’t establish themselves with a business credit bureau may not begin building business credit.
Here are a few steps you can take to establish business credit:
- Get a federal employer identification number (EIN) from the IRS, and/or register with credit bureau Dun & Bradstreet and get a D-U-N-S number.
- Incorporate your business or register it as an LLC.
- Open a business bank account using your legal business name.
Once you establish business credit, it’s up to you to keep the lights on, improving your score further.
2. Pay off any, or all, of your credit card debt
Your credit utilization ratio is the amount of credit you’ve used relative to the amount of credit available to you—and it’s a factor in your business credit score.
If you have a couple of business credit cards and a business line of credit, you may have hundreds of thousands of dollars of credit at your disposal.
And if you’re currently using almost all of that credit? That’s a sign to credit bureaus—not to mention lenders—that your business is carrying a lot of debt, and may not be a good candidate to receive even more credit.
Paying down some of your credit card debt (if not all of it) and not carrying a balance over from month to month shows that you aren’t reliant on your credit to keep your business moving—and will usually result in a score bump. For the record, a utilization ratio of about 25% or less keeps credit bureaus happy.
3. Open another line of credit
As we’ve discussed, one way to improve your credit utilization ratio is to pay off your debt. The other is to increase the amount of credit available to you.
If you can qualify for a business line of credit, this is the perfect tool for increasing your credit limit without incurring a fee. A LOC can sit, unused, for as long as you need it—and the lender won’t charge you. You will, however, benefit from the additional credit available to you in the form of a higher business credit score, particularly if you use it every once in a while.
It’s also useful to have a “credit mix,” meaning different types of credit (such as a term loan, invoice accounts, LOCs, and credit cards). Having three credit cards with similar terms isn’t as impressive to credit bureaus as your ability to juggle different types of credit responsibly.
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4. Keep open old lines of credit
It may be tempting to pare down and close lines of credit that you no longer use—old credit cards, for example. But as we’ve discussed, every bit of available credit contributes to your overall credit utilization ratio, and closing them can have a negative effect on that.
5. Limit your credit applications
This is not a contradictory piece of advice, even though it may seem that way. While it’s good to have different forms of credit, and opening a new line of credit can help improve your score, you don’t want to go overboard with applications—especially if you are applying continuously because you’re getting turned down.
Credit bureaus note the number of times you’ve applied for credit in the past nine months. Sometimes a credit check is a “soft pull” that doesn’t show up on your report, but a “hard pull” will—and enough hard pulls on your credit can have an adverse effect.
Keep in mind that things like an equipment lease and inventory financing also count as credit applications, not just credit cards and the like. So if you have already looked into several forms of financing in the past few months, try to hold off until the bureau expunges your pulls.
6. Review your report for errors
Everybody makes mistakes—even credit bureaus. You can easily request a copy of your business credit score (in fact, unlike personal credit scores, anybody can request a copy of your business credit score) and review it for mistakes such as false inquiries or collections.
Even one incorrect ding to your score can hurt it, and reviewing your report—and calling the bureau to dispute it—doesn’t take that much effort.
Different bureaus (D&B, Experian) may have different reports, so it’s important to review each bureau’s credit score a couple of times a year (or right before you apply for a new line of credit) to make sure your report is as clean as can be.
This isn’t all that goes into improving your business credit score, of course. You can establish credit accounts with your vendors, and/or make an effort to pay off your bills early.
But these six points shouldn’t take more than a few minutes, if any, out of your day. Follow these steps and you’ll be on your way to an elite credit score—without taking you away from focusing on the core tenets of your business.
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