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5 Ways to Raise your Business Credit Score

AUTHOR: Kevin Jaskolka

Inventory. Payroll. Maintenance. Utilities. Transportation. Equipment replacement. Incidentals. These are a mere handful of the cost considerations small-business owners must be mindful of on a near constant basis to keep their doors open and productivity uninterrupted. However, due to seasonal trends and sales cycles that can feel like an unending roller coaster and balancing it all is easier said than done. As the old saying goes, it really does take money to make money.

This helps explain why when small businesses are forced to close. Insufficient cash flow is frequently a prime reason why.

When businesses don’t have the necessary cash available at moment’s notice when needed, they may consider taking out a loan. Just how much they can borrow, however, is largely a function of their credit score. Generally speaking, the higher it is, the more options organizations have in terms of what loans they’re eligible for, and at which interest rates.

This raises a key question: How do you go about raising your credit score and improve your financial footing? Here are a few smart solutions that can help:

1. Determine what your business credit score is

First and foremost is knowing what your credit score actually is and what it means. Everyone who has borrowed money at one point or another has a credit score, which serves as a quick way for lenders to examine your money management for things like car loans or credit cards. A business credit score, as its title implies, takes your business-related purchases into account, with scores generally ranging from 0 to 100. This is different than personal credit scores, which typically fall between 300 and 850. In either case, the higher it is, the more creditworthy you’re deemed to be.

Obtaining your FICO score, by far the most popular credit assessment model, is straightforward enough. You can call one of the credit reporting bureaus or log on to their website. They include Equifax, TransUnion, Dun & Bradstreet and Experian. There may be a fee to obtain your report, the costs typically ranging between $40 and $100.

2. Understand how business credit scores are arrived at

Much like your personal credit score, many factors are evaluated to calculate your business credit score. They include outstanding balances, your payment habits - meaning how long you usually take to pay off a purchase - your credit utilization rate and the size of your business. These factors provide lenders with a more comprehensive view of your financial situation, which allows them to gain more context into what your situation is relative to other businesses of similar size. Knowing what metrics they use can help you assess where you may need to make some adjustments to become more creditworthy in the eyes of lenders.

3. Take care of bills in a timely fashion

As you well know, your ability to keep the business on a positive path is influenced by your customers paying for your products or services by their due date, whether that’s immediately or once they’re billed. Payment history typically has the single-largest influence on how high or low your credit score goes. Do whatever you can to get into the habit of paying your creditors off by the stated due date. It may be best to address them as soon as you receive the bill. If you can’t make the entire payment, reach out to them to see if an installment plan can be implemented. This can usually be arranged at no further cost to you, in terms of additional interest, as long as it’s paid off within a given time period.

4. Reduce your utilization ratio

A credit utilization ratio, much like a score, is something that every business owner receives who’s ever borrowed money. It tells lenders how much credit you actually use in relation to how much you’re eligible for. If at all possible, keep the utilization ratio on the low side, ideally no higher than 15%. You can do this by following a few ground rules, such as lowering how much you spend with credit cards and increasing your credit limit. All you have to do is make the request with your credit card provider. If you’ve been consistent about making your payments on time, this shouldn’t be a problem.

5. Dispute anomalies on your credit report

Another reason why it’s important to check your credit report consistently is ensuring that what you see is above board, meaning that the data reflects purchases you’ve actually made and were paid off within the required window. But every now and then, something may appear on your credit report that looks wrong or doesn’t match up with your records. These errors may be typos or something else that requires further investigation. Whatever it is, it may do unnecessary damage to your credit score. If anything appears amiss, don’t hesitate to file a dispute with the credit bureau in question.

Whether you need a loan for cash flow or to finance an unexpected purchase, we can set you up with the solutions you need. Contact us at Select Funding for business financing made simple.

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