Published By Janet Gershen-Siegel at September 1, 2017
Do you know your small business’ business credit score? And is it, maybe, not so hot? Then consider these simple tips for improving your business credit scores.
This means regularly getting and reviewing your credit reports. And not just for your business! For new businesses and sole proprietorships (and particularly if your business just so happens to be both), credit bureaus often look at your person credit as well. 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.
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.
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.
This goes right along with improving your payment history. Your credit utilization rate is an easy calculation: it’s just your balances divided by your total available credit. You want to keep this figure under 30% if that is at all possible. Therefore, if you borrow less money, and you pay your debts off as quickly as possible, you will keep your business’s credit utilization rate in check. Credit reporting agencies look at this figure, so if you keep it low, that will help with your score.
Finally, you will need to be patient. In particular, because credit reporting bureaus look at payment history and the length of your payment history (which goes directly to how long your company has been in business), one piece of the score improvement puzzle is to just let some time pass, to distance you from your opening day. Good business credit scores aren’t built in a day.