Published By Janet Gershen-Siegel at July 2nd, 2020
Do you know your small business’ business credit score? And is it, maybe, not so hot? Then consider these simple tips for how to easily improve your business credit scores in a recession.
This is especially true in an economic downturn, when bank loans can be scarce.
Company credit is credit in a small business’s name. It doesn’t attach to an owner’s personal credit, not even when the owner is a sole proprietor and the sole employee of the small business.
Thus, an entrepreneur’s business and personal credit scores can be very different.
Because small business credit is distinct from consumer, it helps to protect a business owner’s personal assets, in case of litigation or business bankruptcy.
Also, with two distinct credit scores, a small business owner can get two different cards from the same vendor. This effectively doubles purchasing power.
Another benefit is that even startup businesses can do this. Visiting a bank for a business loan can be a formula for disappointment. But building small business credit, when done right, is a plan for success.
Personal credit scores are dependent on payments but also additional considerations like credit usage percentages.
But for small business credit, the scores truly just depend on whether a small business pays its debts timely.
How do you improve your payment history? It’s easy – just pay your bills on time, and as close to ‘in full’ as possible. Of course, that is not always as easy as it sounds. The truth is, just as you need to keep your personal spending within your means, you will need to keep your business spending realistic as well.
We cannot predict the future. Who can tell if your company’s particular widget will suddenly take off? All you can do is go by whatever data you can get, and interpret it in a manner that is not overly optimistic. For new companies, that means looking at industry trends. For more seasoned companies, it means closely examining your business’s performance under all sorts of conditions.
Therefore, if it looks like your company can make $1 million next quarter, but you need to borrow money, don’t borrow more than $1 million and, in fact, you probably want to borrow less than that.
Keeping your business spending in check and not gambling the company’s future on a hunch are both good ways to get your credit balances down and, as a result, improve your payment history. After all, your biggest supplier could go out of business, your best worker could retire, or crops could fail or any of a number of setbacks could occur. Being bold in business can often be a virtue – but you still need to pay your company’s bills.
The single most vital step you can take to improve your business credit scores is to improve your payment history. Every credit reporting agency weighs this factor heavily.
This means regularly getting and reviewing your credit reports. And not just for your business! For new businesses and sole proprietorships, credit bureaus often look at your person credit as well. And this goes double if your business just so happens to be both. Therefore, you will need to keep on top of both sets of scores, which is a good financial habit to get into, anyway.
Why do this? Because credit scoring reports can have errors and you have the right to dispute them. But you will not know there’s an error unless you check.
Disputing credit report errors generally involves sending a paper letter with copies of all proofs of payment accompanying it, such as receipts and cancelled checks. Of course, you do not want to send the originals – always send copies and retain the originals. Precisely itemize any charges that you are calling into question. Use certified mail so that you will have proof that you sent in your dispute.
Of course, if there are no mistakes on your credit reports, then you will need to move onto the next step. 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 do not like that.
Know what is happening with your credit. Make sure it is being reported and attend to any inaccuracies ASAP. Get in the practice of taking a look at credit reports and digging into the particulars, and not just the scores.
We can help you monitor business credit at Experian, Equifax, and D&B for 90% less.
Update the relevant information if there are mistakes or the information is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm. For Experian, go here: www.experian.com/small-business/business-credit-information. And for Equifax, go here: www.equifax.com/business/small-business.
Disputing credit report errors normally means you specifically spell out any charges you challenge.
Dispute your or your small business’s Equifax report by following the instructions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.
You can dispute inaccuracies on your or your small business’s Experian report by following the directions here: www.experian.com/small-business/business-credit-information.
And D&B’s PAYDEX Customer Service contact number is here: www.dandb.com/glossary/paydex.
You can use AnnualCreditReport.com to get your credit report from Transunion, Equifax, and Experian.
You will need to keep on top of three separate reports: Equifax, Experian, and your business’s PAYDEX report.
Get your PAYDEX report here and you can contact their Customer Service department (it’s a part of Dun & Bradstreet, as they also generate PAYDEX reports) here. D & B’s PAYDEX Customer Service phone number is here.
Finally, you will need to be patient. In particular, because credit reporting bureaus look at payment history. And they also look at the length of your payment history. So this goes directly to how long your company has been in business.
As a result, one piece of the score improvement puzzle is to just let some time pass. Get some distance you from your opening day. Good business credit scores aren’t built in a day.
Always use credit responsibly! Never borrow more than what you can pay back. Monitor balances and deadlines for payments. Paying off in a timely manner and in full will do more to raise business credit scores than nearly anything else.
Establishing small business credit pays off. Great business credit scores help a small business get loans. Your lender knows the company can pay its financial obligations. They recognize the company is bona fide.
The business’s EIN attaches to high scores and lending institutions won’t feel the need to request a personal guarantee.
Business credit is an asset which can help your small business for many years to come. Learn more here and get started toward building company credit.