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Maintaining a Perfect Credit Score as a Small Business Owner

Having a perfect credit score as a small business owner can help you to expedite the approval process for lines of credit or financing. It can also help you to secure relationships with vendors, suppliers and other organizations as your business continues to grow, and help you gain better interest rates on future small business loans or insurance premiums. Fortunately, maintaining an exceptional credit score as a small business owner doesn’t have to be difficult.

3 ways to an excellent small business credit score

If you’re looking to improve your small business credit score, you can start by making sure you and your business follow these best practices:

Maintain a reasonable credit utilization ratio

Although maxing out your business credit cards or using all of your available business financing may not impact your personal credit score, it can have a negative impact on your business credit score. Instead, work to maintain a reasonable credit utilization ratio for your business. You can do this in two ways:

  1. Try to increase the total amount of credit you have available. You can do this either by asking for a credit line increase on your current business credit card, or you can apply for a new line of credit.
  2. You can also try to lower the amount of debts you currently owe to various lenders by paying them down more quickly.

The majority of experts agree that keeping your credit to debt ratio at or below 30 percent gives you the greatest chance of achieving a perfect small business credit score.

Make payments on time

Payment history is one of the top factors that business credit reporting agencies consider when looking at your small business credit score. Ensuring that you make on time payments to all of your lenders will help you maintain an excellent business credit score and keep your lenders happy.

Stay consistent

Business credit reporting agencies like to see a long history of paying down debts on time, as well as keeping a reasonable credit utilization ratio for your business. Although you can’t necessarily influence how long you’ve been in business (one of the things used to determine your business credit score), you can stay consistent with your good behavior. That will help you continue to grow a solid report history as your business grows with time.

3 habits that will kill your business credit score

It may seem easy to follow the above “to-do list,” but what about the things you shouldn’t do if you want to maintain a perfect business credit score? Here are a few mistakes to avoid:

Missing payments

When you miss a payment to a lender, they’ll report the missed payment to the business credit reporting agencies, and the mistake will go on your record. Although mistakes like these aren’t permanent, they do stay on your business credit report for a short period. For example, collections information stays on your business credit report for almost seven years, while bankruptcies stay on your report for nearly 10 years.

Using the wrong vendors

As is the case in the world of personal credit, not all vendors are created equal. Several business lenders or vendors will have predatory repayment conditions that make it difficult to pay back what you owe and increase your likelihood of receiving a derogatory remark that could decrease your business credit score. Before you sign on with any one vendor, make sure that you have done your research, understand the contract and know the vendor is reputable.

Long-lasting derogatory remarks on your record

If you miss a payment, or have another derogatory remark on your credit report, that information lasts for a long while:

  • Trade data remain for 36 months
  • Bankruptcies remain for 9 years and 9 months
  • Judgments remain for 6 years and 9 months
  • Tax liens remain for 6 years and 9 months
  • Uniform Commercial Code filings remain for 5 years
  • Collections remain for 6 years and 9 months
  • Bank, government and leasing data remain for 36 months

Your best option is to maintain positive relationships with vendors by repaying debts in a timely manner.

How to establish a business credit score

If you’re a relatively new business owner, or you simply don’t have business credit established yet, you should consider doing so for a few reasons:

  • Good business credit scores can help you get better interest rates on your loans, lower insurance premiums, and secure better trade terms with vendors or suppliers in your industry.
  • Good business credit can help you secure business financing if and when you’re ready to continue growing your business.
  • Strong business credit can help you to complete important financial tasks for your business like opening a business checking account or opening a business credit card.

To establish your business credit, you can follow eight easy steps:

  1. Establish your business. Get a business phone number and open a bank account in your legal business name to pay your bills and collect payments from customers.
  2. Maintain good relationships with suppliers and vendors by paying them on time.
  3. Establish an EIN (Employer Identification Number). This will be necessary to help you open a business account and set up contracts under your business’s name for tax purposes.
  4. Always make payments on time.
  5. Open a business credit card and use it wisely.
  6. Consider filing your articles of incorporation as an LLC or Inc.
  7. Keep your business and personal finances separate.
  8. Monitor your credit for errors through your DUNS number, and correct them when they come up.

Getting a copy of your business credit report

In order to maintain excellent business credit, you first need to gain a clear understanding of where you stand. To do this, you should monitor your business credit by requesting a copy of your business credit report. This will help you understand where your business credit currently stands, correct any inaccurate information, and focus on what areas of your finances you need to improve to grow your credit score.

You can get a copy of your business credit report through several different ways. First, after you’re denied a loan, the lender will likely be able to point you toward a copy of your business credit report to help you understand why you were denied. Second, you can sign up for a free service that helps you pull copies of your business credit report. Nav.com offers full-service business credit report tracking for several different pricing levels. Finally, you can request your business credit report directly from business credit reporting agencies, such as Experian.

The bottom line

As a business owner, you want to set yourself up for future financial success. One of the best ways to do this is to maintain a strong business credit score. By building strong credit, you’re opening yourself up to future opportunities for lower interest rates, lower insurance premiums, and better relationships with vendors, lenders and suppliers.

 

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