Published By Janet Gershen-Siegel at October 2, 2017
Your mission, should you choose to accept it, is to improve your business credit scores. Improving your business credit scores will make it easier for you to get loans and credit, and you will get better terms for both.
It can also mean the difference between wanting business credit and loans, and not getting them at all. So here are three simple methods to improve your business credit scores.
How do you make your small business’s payment history better? It’s easy – just pay your invoices on time, and as close to ‘in full’ as you possibly can. That can be easier said than done. The truth is, in the same manner that you need to keep your personal spending within your means, you also must keep your business spending realistic.
No one can predict the future. All anyone can do is to go by whatever data is available. Plus it should be interpreted in a way that is not overly optimistic. For new businesses, that should mean looking at industry trends. For more businesses that are not so brand new, it means closely examining your business’s performance. This should be under all sorts of conditions.
Hence if it looks as if your business can potentially make $1 million next quarter, but you need to borrow money now, do not borrow more than $1 million. And you probably want to borrow even less than that. You need to keep your business spending in check and not gamble the company’s future on a hunch. These are both good ways to get your credit balances down. As a result, that will improve your payment history.
Consider that anything could happen, such as: your biggest supplier could go out of business, or your best worker could quit, or important crops could fail or any of a number of setbacks could happen. Being bold in business can often be a good idea. However, you still need to pay your business’s bills.
This goes hand in hand with improving your payment history. Your credit utilization rate is an easy calculation: it’s just the ratio your balances as divided by your total available credit. You should keep this figure under 30% if you can. So if you borrow less money, and you pay your debts off as quickly as possible, then you will, by definition, keep your business’s credit utilization rate in check. Credit reporting agencies will look at this figure. Therefore, if you keep it low, that will help with your scores.
This means regularly getting and reviewing both your business and personal credit reports. This is because, for new businesses and sole proprietorships (and in particular if your company is both), credit bureaus will often look at your person credit as well. Therefore, you will need to stay on top of both sets of scores, because credit scoring reports can have errors and you have the right to dispute them. However, you will not know there are any errors unless you check.
Disputing a credit report error generally involves sending a paper letter with copies of any proofs of payment with it. These are generally going to be receipts and/or cancelled checks. Never send the originals – always send copies and keep the originals. Precisely itemize any charges that you are questioning. Be sure to use certified mail so you will have proof that you sent in your dispute.
If there are no mistakes on your credit reports, then of course you cannot dispute anything. And please don’t try to pull a fast one and dispute your credit score if there is really nothing wrong with it! Credit reporting agencies, understandably so, are not going to like that.
Pay attention to your business credit scores and the overall financial health of your business and you will be far more likely to succeed.