Having strong business credit scores and ratings are key to getting approved for trade credit and financing for your company. In the same way that personal credit scores serves as a financial report card, your business credit scores grade the creditworthiness of your business.
A statistically derived algorithm designed to determine risk based on multiple factors calculates your scores. Although each business credit-reporting agency utilizes its own scoring model there are several common factors that are used to calculate your business credit scores.
Here are five ways to improve your business credit scores and ratings:
1) Make prompt payments.
The promptness with which a company pays its bills is one of the driving factors that impact business credit ratings. For maximum impact, pay invoices ahead of the due date. The greater the number of days a company pays sooner than terms the greater the impact it will have on its business credit scores. For example, a business that pays its bills promptly will have an 80 D&B Paydex® Score, while another company that pays 30 days sooner than terms may have a 100 D&B Paydex® Score.
2) Add positive trade references.
Adding positive payment experiences that your company has with suppliers, vendors or business partners may have a positive impact to your business credit ratings and scores. Although not all vendors and suppliers share payment data with a business credit-reporting agency, you have the opportunity to add trade references to your company’s Dun & Bradstreet (D&B) credit file.
Did you know the number of trade references reporting on your business credit report is what generates a business credit rating? For example, it takes a minimum of three trade references to generate a Paydex® Score with Dun & Bradstreet.
3) Improve your credit utilization ratio.
A company’s credit utilization ratio is one of the important factors credit scoring models use to calculate business credit ratings. Lenders view a business with a high utilization rate as a greater risk of not being able to repay its debts.
Work to keep your credit utilization low. Under 30 percent is a good benchmark number to shoot for.
The fact is lenders want to see that your company can properly manage its debts. Low credit utilization ratio may cause a lender to be more willing to extend credit because there is much less credit risk.
4) Increase your credit limit.
Of the various ways you can improve your business credit scores, increasing your credit limits is one strategy you can implement immediately. Usually after the first six months of opening a credit account you can request a credit limit increase. Keep in mind, some card issuers do periodic reviews to determine whether or not a customer should get an automatic increase.
You can either request a credit limit increase online or by phone. An increase in credit availability lowers your credit utilization ratio, which ultimately improves your business credit ratings.
5) Keep your business profile up-to-date.
Similar to a personal resume you use to apply for a job, your business profile is the resume you use to apply for credit. Not only does your business profile contain your company’s banking and payment data, it also contains critical information that other businesses, suppliers and lenders use when deciding whether to extend credit to your company and on what terms.
No one knows your business better than you so it is essential that your profile is accurate. Information such as the number of years you have been in business, number of employees and gross annual sale should always be up to date.
Improving your business credit scores and ratings is one of the most important steps you can take as a small business owner. Doing so will enable your business to maximize its funding potential and obtain the most favorable terms possible.
Marco Carbajo is a business credit expert, author, speaker and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and AllBusiness.com. His articles and blog, BusinessCreditBlogger.com, have been featured in Fox Small Business, American Express Small Business, Business Week, The Washington Post, The New York Times, The San Francisco Tribune, Alltop, and Entrepreneur Connect.