Business credit

Tips to improve your business credit score

Apr 05, 2024

To keep your business afloat or profitable in the market, at some or the other, you will have to borrow credit. For funding business operations during non-profitable seasons or making large investments, credit is needed.

Hence, it becomes essential to maintain a good business credit score. Expansion, investment, working capital requirements, and other heavy capital business functions can be fulfilled only by borrowing credit.

Credit-lending institutions look at the credit score to check the credibility of the business. If your business credit score isn’t up to the mark, you will have to research and implement ways to improve your business credit score.

What is a business credit score?

A business credit score is like a report card of your business used by lending institutions to check a company’s creditworthiness.

Before extending a loan to any business, the provider will, of course, check if the company will be able to pay the interest amount and repay the total amount at the end of the payment cycle. 

So, your credit score is calculated using all the payment history, behavior, and other financial details of a business mentioned on paper.

Apart from financial institutions, outside business investors, stakeholders, and customers use the business credit score to judge the trustworthiness of the business.

Additionally, other businesses that might think to partner with your business will also check your credit score to know about your payment history and expense behavior.

Importance of having a good business credit score

The answer to the importance of a business credit score is simple: it is a business health and reliability indicator.

Along with getting good credit deals, a good credit score can help in negotiating prices and services with vendors.

Furthermore, here are some detailed benefits of a good business credit score: 

1. Cheaper financing

A good business credit score indicates that your business is sincere towards interest payments and on-time repayment. This helps you get cheaper financing.

Meaning the rate of interest or price at which your business will secure the loan will be less. Ultimately saving your business money on interest charges.

Suggested read: How to get a business loan without collateral in Australia?

2. Vendor negotiations

When a vendor looks at your good business credit score, they will know that your payment habits are professional and on time.

Hence, they won’t hesitate to extend purchase credit or negotiate discounts and lesser prices and increase contract length.

Suppliers also might eliminate the terms of prepayment.

3. Personal and business finances stay separate

Not many people talk about the fact that when times get difficult for a business, many business owners resort to taking personal loans because the business’s credit score isn’t that good.

With a good business credit score, your company will be a suitable candidate for all kinds of business loans. This will further help in keeping your personal finances separate.

To know in detail, check out our article to know how credit scores affect business loan approval process

5 factors that affect business credit scores

1. Payment history

Previous loan payments, late interest payments, any court-related debt, tax liens, expense patterns, and any other such payments are categorized under payment history. 

2. Credit utilization

Total credit limit and accounts, plus what is the percentage of credit usage, come under credit utilization.

The percentage of the amount you use from the total credit limit should be minimal to show that your business spends mindfully. 

3. Length of credit history

Some credit providers look at the time from when you have been taking credit. If it is too low, they might not be willing to extend the loan.

This is because lesser credit or credit account number shows that your business is not that actively dealing.

This would, in turn, show that the business won’t be able to make the EMIs or repayment.

4. Types of credit used

Every credit bureau uses different credit account types to judge the credit score and financial position of the business.

So, you cannot just have one credit type like credit cards; there must be variations like vendor credit, business credit line, overdraft account, etc.

Different credit types help you qualify for various loan-providing institutions.

5. New credit applications

Applying for new credit cards or credit lines one after the other shows a lack of management and irresponsible money spending.

Hence, this has a negative impact on your credit score.

Tips for improving your business credit score

The first step towards maintaining or achieving a good business credit score is to pay all your business bills on time. Bill payment defaults affect the credit score negatively. 

The next important tip to improve your business credit score is to monitor your credit utilization ratio. Ensure that you use the least possible or up to only 30% of the borrowed credit.

Another tip on how to improve business credit scores is maintaining a good credit history. The times you have taken credit should be prudential in proportion to the time your business has been in the market. 

Diversifying credit types is also one trick to improve business credit scores. Having different credit types, like cards, credit lines, overdraft accounts, etc, proves to be beneficial as too much credit from one source negatively affects the credit score. 

Limit new credit applications. Do not choose to borrow credit for everything there is the slightest shortage because more than required puts you into credit fault. Only narrow when extremely needed. 

Regularly check and review your credit report to stay on track with your borrowed amount and maintain your credit bills. Plus, reviewing your credit report will help you make prudential future borrowing decisions. 

Establish and maintain strong business relationships with vendors and other partners. This will help you get credit on your business purchases or get loans from the business partners only.

Seek professional advice from a credit counselor or financial advisor. These experts will be able to help you analyze your reports and help make credit decisions. 

How can Volopay help businesses by providing a flexible credit line?

It’s time to choose a credit line for your business, and we don’t want you to suffer through the pain of researching for days and then making a decision. We are here to give you the best. 

Looking for a business credit line? Get Volopay!

Volopay offers high amounts of credit at a low-interest rate and with very minimal documentation and no personal guarantee.

Not only this, you can choose your own repayment cycle process.

You also get corporate cards to help you easily make spends and have seamless control and transparency.

Boost your cash flow with interest free line of credit