The health and success of your business depends on how it is rated by credit reporting agencies. Any company with open credit is assessed based on mixed criteria. If you are seeking any type of financing, checking and improving this indicator is vital. Follow our guide to do this correctly.
What Defines the Score
This metric works similarly to a personal score, but the scale is more narrow — from 0 to 100. It is the key indicator of financial status for organizations. All bureaus follow different calculation models to determine your score, but they all look at outstanding balances, prior payments, and trade experiences. The closer to 100 you get, the better your reputation in the eyes of institutions.
Why Raise the Score
If your firm is regarded as financially stable, banks are more likely to approve funding. The indicator determines the range of available options, just like a personal score determines accessible loans and rates. Poorly rated borrowers are charged more interest, and they are more likely to be turned down by lenders. The same is true for businesses.
If the Score Is Unfair
Sometimes, businesses have falling scores through no fault of their own. The bureau may lower your company’s status due to erroneous data on its report. This is a common situation. Companies may use different methods to rectify the mistakes — enlist services of credit help companies or handle the disputes on their own.
As we have mentioned, mistakes in your report are guaranteed to affect the score. To get rid of unjustified derogatory marks, you need to follow a procedure similar to personal credit repair. Reach out to the card issuers to collect evidence and send letters to the bureaus or call them. By law, they are obliged to delete any information that may not be verified.
Make sure your company’s history is accurate and up-to-date. Note that hard inquiries also affect your score, so avoid applying for loans repeatedly within a short period of time. Follow these steps to enhance your status:
1. Scrutinize Your Company’s Report
Unlike consumers, business owners do not have an opportunity to check the reports for free. To see if your credit history is correct, contact three bureaus — Dun & Bradstreet, Equifax, and Experian. Involving all three sources is important, as they compile their data independently. Any of the histories may be skewed, so you need to get the full picture.
Examine each of the documents carefully going line by line. Identify any derogatory marks — events reflecting inability to meet the obligations, such as missed payments. If any of the amounts and events are incorrect, you may dispute them formally.
2. Never Miss a Due Date
This is the primary condition. Anything else you do will be useless if you fail to pay your bills. Paying on time is one of the easiest ways to give the score a boost.
3. Decrease Utilization
Utilization is the proportion between the sum of balances and the sum of limits. It shows how much of your available credit is in use. This works similarly to personal credit cards — the less is charged the better for the score. While individuals should aim to reach the 10% ratio, businesses might keep it at under 15%. Here are three proven ways to bring down the metric:
Paying off the outstanding balance is a no-brainer, and it is guaranteed to decrease the ratio. If you cannot afford to pay the full amount, at least make the minimum payments.
You may also approach the proportion from another angle. As your limit grows, it will change the ratio in your favor. Request an extension from your credit card issuer.
Use less of the available credit to achieve your goal.
A new credit line will increase the total amount of credit available, which is also guaranteed to push the ratio down. Do not use this line — it is merely a way to move the score.
Every bank shares data with the bureaus based on its reporting cycle — usually, every 30 days. Thus, if you spend a lot and pay off the balance by the due date, the report may still show a large debt. Make sure your expenditures do not pile up by the end of the period.
4. Open an Account with a Supplier
If you have worked with some of your suppliers for an extensive period of time, use this relationship to open a credit account. This will also bolster the score, as there will be more positive payments on your file.
5. Generate New Favorable Entries
While lenders share data with one, two, or three bureaus, vendors and suppliers may not report your payments at all. However, it is still possible to make these positive trade references work in your favor. You can add them to the company’s file manually by contacting the reporting agencies. Include as much favorable information as possible.
6. Wipe off Paid Collections
Paying off a debt in collections will not help your score a bit if the agency fails to delete it from the data it shares with the bureaus. You have to ask for this explicitly. Make sure the collection has vanished from your records. Otherwise, the debt will still hurt your status.
The credit score of a business is a critical factor in securing funding, particularly loans. If your status is less than perfect, this is not a reason to fret. There are many ways to push it up, from correction of mistakes to creation of new positive history.
This article does not necessarily reflect the opinions of the editors or the management of EconoTimes