Repair Your Business Credit Score Fast With These 5 Tips
If your business has experienced financial difficulties in the past due to the economy, poor business, or other issues, it’s important to take the time to repair your business credit score. Your business’s credit score is important for providing you with more financing options, paying less for financing, and getting better terms from suppliers. It can also be incredibly helpful for beating out the competition. Repairing business credit isn’t like repairing personal credit; it requires a unique set of steps to repair a damaged business credit score. Let us walk you through the best way to get your credit score back on track.
What Factors Affect My Business’s Credit Score?
Each business credit bureau has different credit scoring models; however, four main factors play a role in determining your business credit score. These include:
Business payment habits
This includes the number and types of trade lines, the size of your outstanding balances, payment history, and credit utilization. Tradelines might include business credit cards, business loans, and accounts with suppliers of goods and services.
Derogatory marks
This includes the presence of derogatory marks, the amount, and how recent they took place. Reports such as tax liens, court judgments, and bankruptcies affect your score.
Amount of business credit inquiries
These are triggered when your business applies for credit and can also affect your score. It’s important to know that these go hand-in-hand with your personal credit, especially when you’re relying on your personal credit score to get funding for your business. When it comes to business inquiries, FICO® Small Business Scoring Service℠ and Experian look most closely at them when determining your score.
Inherent business factors
Examples of these include the number of years you’ve been in business, the company size, and your industry.
Misinformation
When credit bureaus don’t have the right information about your business, your score can suffer as a result. Without being properly registered, established businesses with 20+ years in their industry can lose all of their business credit because it was registered to someone else. Make sure that your proper business name, address, and phone number are registered to avoid this happening to you.
You can find a copy of your business credit report and your score directly from one or more of the business credit bureaus: Dun & Bradstreet, Equifax, and Experian.
How to Improve Your Business Credit Score
Correct Errors on Your Business Credit Report
According to a survey by the Wall Street Journal, nearly 25 percent of business owners who check their business credit reports found errors; these errors could be responsible for your low business credit score. Even something as simple as the wrong industry code for your business could throw off your credit. For example, let’s say you make software for trucking companies, but the business credit bureau accidentally categorizes you as a trucking firm. This mistake places you into a riskier category, and you could end up paying hundreds or even thousands of dollars more for financing to correct errors on your business credit report. Depending on which business credit bureau made the error, you must follow their process for error reporting. In most cases, you’ll need to highlight the incorrect information on your report, provide proof to show why there’s an error, and either mail, email, or fax this documentation to the agency. Most investigations are completed within 30 days, although sometimes agencies like Experian have a portal where a business representative can make certain updates immediately.
Choose Suppliers and Lenders That Report Payments
Small businesses that have been behind on payments in the past can repair their business credit by showing timely payment behavior. However, your positive payment history can only be rewarded if you work with suppliers and lenders that report payments to the business credit bureaus. For example, if you are a retailer of household goods who buys inventory from a wholesaler, ensure that the wholesaler reports to at least one and preferably more business credit bureaus; that way, every time you pay an invoice from your wholesaler on time, you’ll be building up your credit score a little bit at a time. 5 Star Processing and Uline are a few examples of vendors that report to business credit bureaus. You can also apply for a corporate fuel card to add an additional tradeline to your business credit report.
Apply for a Business Credit Card
You may have a poor business credit score because you simply don’t have enough tradelines on your account. A business credit card is one of the easiest tradelines you can have. Even making small purchases on a business credit card and paying them off on time each month can help you improve your business credit score. If you’re unable to qualify for a regular business credit card, try a secured credit card. With a secured credit card, you put down a monetary deposit to qualify for the credit line. Alternatively, you can apply for a corporate credit card from a big box retailer like Home Depot or Lowe’s.
Manage Your Personal Credit Well
If you’re on the market for a business loan or business credit card, you could end up in a catch-22. Although you need financing for your business, your personal credit score also impacts how likely you are to get approved. Managing your personal score is crucial to building a strong business credit, especially in the early stages of financing. Research lenders closely, and only apply for credit when and if you need it. Never borrow more than you need, either, as this will lower your score and drain more cash from your operations. The team at 5 Star Processing can help you figure out how much financing you can afford and the best lenders for your company.
Take Proactive Measures to Pay Off Debt
Managing debt as a business owner is extremely important for both maximizing revenue and avoiding low credit. When you are a business, outstanding payments can quickly accumulate, leaving you at a cashflow deficit that’s hard to overcome. You want to prioritize debt repayment as part of your financial strategy. This includes paying business credit cards on time, paying off loans as quickly as possible, and making sure your taxes are always current. We suggest keeping a calendar of tax deadlines so you never miss one. When you start experiencing cash flow issues, try to cut back on business expenses or increase your revenue so you don’t fall into a deeper hole and start missing payments. If you experience legal trouble, contact a business lawyer right away. Sometimes these issues are out of your business’s control, but you can take steps to minimize the damage to your credit. It may take some time to repair, but by following these five tips, you can work towards a better credit score. With these tips in mind, you can more confidently secure the best, most affordable financial products for your business. For more information on credit loans and other small business topics, check out 5starprocessing.com/blog and subscribe to our YouTube channel for more details.
FAQ's
It can take one to three years to build your credit score and become eligible for small business loans. There are many different factors that can affect your credit, such as how much money you’re bringing in, your personal credit score, and the structure of your business. Following many of the steps for repairing a credit score can also help you build one.
Every LLC does have its own credit score; however, it is based on the employer identification number (EIN) and not the LLC itself. The EIN is a nine digit number assigned to businesses by the IRS.
If you choose to start your own LLC, this will not affect your personal credit score unless you cosign for a loan for your own company. In the beginning, many companies may look at your personal credit in addition to your business credit score because your business is new and has no track record. You can start to separate your business from your personal credit by registering for a DUNS (data universal numbering system) number, having a separate business bank account, a business phone number, and a business credit card.
Business credit scores are ranked from 0 to 100, and each credit bureau sets their own standards for what is considered a good score. For example, Dun & Bradstreet like to see a PayDex score of at least 80, while Experian prefers a score of around 90.
Equifax has a two-score business credit rating system. The first is a credit risk score of 101 to 992, then a payment risk of 0-100. The Equifax Risk Score® reflects how likely someone is to become 90+ days delinquent on their credit payments within a 24-month period.
Overall, we suggest developing a broad approach to raising your business and personal credit scores. This will give you the greatest chance of being approved by any lender when you are seeking financing for your business.
It all depends on how well your credit has been built to know how much credit you can get. If you’re just getting started, you could be eligible for very little credit. But if you have an established business credit, you would be eligible for much more. And remember, paying back business loans and credit card payments–on time–can help you build more credit and make you eligible for larger amounts.
