Top Ways to Improve Your Small Business Business Credit Score

March 26, 2021
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A good business credit score can garner you better terms for business loans and insurance policies for your company.


If you’re a small business owner floundering in a sea of middling credit, fear not. There are easy ways to improve and increase your business credit score—you just need to set aside some time and resources dedicated to the task. 


First, we’ll run through how a business credit score is determined by an credit reporting agency and why it’s important to work toward a good credit score. Then, we’ll outline four ways you can improve business credit score, including:


  1. Confirm current credit score and dispute errors
  2. Keep tabs on monthly spend and pay your bills on time
  3. Lower your credit utilization ratio 
  4. Establish lines of credit that report to credit bureaus


How To Determine Your Business Credit Score

Most individuals who have applied for a credit card or loan are familiar with the FICO credit scoring system. Your personal credit score is ranked on a scale of 300-850 (with 850 being the best) and is based on a variety of factors, including your payment history and credit utilization ratio.


A business credit score, though, is determined by an entirely different system. Just as personal credit scores tell a lender how creditworthy you are, business credit scores tell a lender how creditworthy your company is. 


The numbering system for business credit scores varies, with the three major business credit bureaus—Experian, Equifax, and Dun & Bradstreet—using their own scoring methods. 


Regardless of which bureau algorithm is used to determine your business credit score, it will always be affected by the following factors:


  • Outstanding balances
  • Payment history
  • Credit utilization ratio
  • Negative public records (this could include liens, judgments, and bankruptcies appearing on your business profile)
  • A trend of slow payments
  • Years in business and size of business 
  • Number of trade experiences—every payment experience your business has conducted will appear in your business credit report


The Importance of a Business Credit Score 

As your business grows, you’ll likely need to rely on both personal and business lines of credit, which means you’ll need to maintain a strong score for both. An improved credit score for your business can help you:


  • Procure business loans with favorable terms (i.e. low interest rates)
  • Lower your insurance policies
  • Get access to more business financing
  • Protect your personal assets as you rely on your business credit instead of personal credit


How To Improve Business Credit Score in Four Steps 

Now that you’ve determined how to calculate your business credit score—and why it matters—you’re better equipped to improve the results of your credit report. Keep in mind, achieving a stellar business credit score is not an overnight process; you’ll need to set aside time and resources to invest in the following practices.


#1 Confirm Your Current Credit Score and Dispute Any Errors 

Begin at the beginning—at least once a year obtain your business credit report from one of the three major business credit bureaus and identify any errors. Requesting your business credit score isn’t free, but the small fee is worth the financial data you’ll gather for your business credit profile.  


The process of requesting your credit score from one of the three major business credit bureaus is simple.  


Requesting from Experian

To request your business credit report, visit Experian and submit a payment of $39.95.


Experian will issue you a CreditScore report which is based on:


  • Credit information collected from your supplies and lenders
  • Legal filings 
  • Company background information from public records or collection agencies
  • Outstanding loans
  • Payment habits 
  • Size and age of your business
  • Whether or not you have any bankruptcies in your past

 

Your report (find a sample here) will include your business credit score as well as information like payment trends, account histories, and public records. 


In addition to your credit score, you’ll also receive a financial stability risk rating, which “predicts the likelihood of payment default and/or bankruptcy within the next 12 months.” The rating is 1-5, with one being low risk and five being high risk. 


Requesting from Equifax

To request your credit report, visit Equifax and submit a payment of $99.95. 


Your Equifax report includes three different assessments: 


  • The payment index, using a 0-100 range, pulls information from your vendors and creditors detailing how many company payments were made on time. 


  • The credit risk score is used to determine the likelihood that your business will be delinquent on payments in the future. This score ranges from 101-992 and is based on a number of factors including company size, available credit limit, length of time since your oldest financial account was opened, and evidence of non-financial transactions. 


  • Your business failure score ranges from 1,000-1,610 with a lower score indicating a higher likelihood of business failure. This score is used to predict how probable it is that your business will close in the next year. The score is based on the age of your oldest financial account, how much of your credit limits you’ve used in the last three months, whether you have any delinquent accounts from the past two years, and evidence of non-financial transactions. 


The Equifax report (check out a sample here) includes your credit summary, your three different scores, payment trends, and public records of your business credit profile.  


Requesting from Dun & Bradstreet 

To request your credit report, visit Dun & Bradstreet and submit a payment of $61.99. 


Like Equifax, D&B includes three assessments in your report: 


  • The Paydex system is based on payment history information relayed directly to D&B or to one of their partner companies. To receive this score you’ll first need to register for your free DUNS number online


  • The commercial credit score, ranging from 101-607, is a future scoring system, used to predict how likely you are to be delinquent on payments in the next year.


  • The financial stress score, ranging from 1,001-1610, is essentially a nicer way of framing a business failure score—the lower the score, the more likely your business will close in the next 12 months. 


Your report (check out an example here) will include your credit summary, a D&B credit limit recommendation, your D&B Paydex score, an industry payment benchmark, and six months of report access.   


Once you’ve received your report from one of the three credit bureaus, identify any errors and immediately notify the bureau if you spot anything awry—be prepared to offer evidence to back your claim. 


#2 Keep Tabs on Monthly Spend and Pay Your Bills on Time 

Just as you must pay bills on time to maintain a strong personal line of credit, a history of on-time payments does wonders for your business credit score. Knowing how and where you’re spending money will help you prioritize transactions and execute these payments. 


Regardless of the size and nature of your business—maybe you are your own bookkeeper, or perhaps you have a full FP&A team—keeping tabs on all company spend is a time-consuming necessity. In order to ensure that your business credits match your business debits, consider investing in the following practices:


  • Review and assess business expenses – Go over your daily, weekly, and monthly  transactions with a fine-tooth comb and look for areas of improvement. Do you need three separate subscriptions to seemingly identical software? Can you cut down on utilities by keeping the office closed on the weekends? Asking yourself these questions will help you prioritize your spending. 


  • Look into an automated expense management platform – Consider ditching the troublesome journals and ledgers in favor of a streamlined, automated expense management platform. With automated expense reporting, you can track expenses and receipts in real-time, cutting down on human omission and error. 


  • Put all of your monthly bills on one business card – While multiple corporate cards can help you keep credit utilization low, putting all of your business transactions on one business card will help you focus on company spend without getting bogged down by other purchase history. 


Utilize a Smart Corporate Card

If you plan to use a corporate card to streamline expenses and track spending, be sure to find a smart corporate card designed for businesses to save money. With traditional credit cards, you increase your financial flexibility with a dedicated line of credit. Smart corporate cards compound this benefit with built-in features that help companies spend that money wisely. 


Features like automated accounting, receipt matching, seamless approval process, and expense management can make paying bills on time and keeping track of them simple.


Discover cost-saving opportunities automatically with Ramp—no credit checks necessary.


#3 Lower Your Credit Utilization

Similar to personal credit, limiting how much you owe on your card will increase your business credit score. 


Using 30 percent or less of your business credit card’s limit will improve your business credit score. If you have big purchases to make, consider increasing your credit limit to help with this ratio. Paying your bills before their due date also helps to lower your credit utilization. 


#4 Establish Lines of Credit That Report to Credit Bureaus

Making payments on time to other businesses who report to these bureaus will increase your credit score. Keeping business relationships in good standing should be a priority, including those with: 


  • Lenders – Taking out loans can help your business credit if you make all payments in a timely fashion. Be sure to ask if your lender reports to a business credit bureau. 


  • Vendors – Set up as many trade lines as possible to boost your business credit score. Vendors can include smaller operations like water cooler distributors to larger, frequently used third-party suppliers like telecommunications. A smart corporate card can help you manage vendor payments and relationships, automatically track and predict upcoming payments for your vendors and SaaS subscriptions. This eliminates all potential surprise charges and optimizes your cash flow.  


If a vendor doesn’t report to a credit bureau you can still list them as a trade reference on your account. 


How to Increase Credit Score with Ramp

If you’re a business owner, having a solid business credit score is just as important as possessing a great personal credit score. Determined by the three major business credit bureaus, these scores can either help or hamper your business growth. 


By dedicating time and resources to improving your score, you’ll set yourself up for fruitful business endeavors, whether that’s taking out a loan, investing in a new partnership, or securing an attractive insurance policy. 


With smart corporate card Ramp, business owners can track company spend in real-time with Ramp’s automated expense reporting. You can use the card for all of your business transactions, helping you keep tabs on your budget and saving you money in the process—Ramp offers unlimited 1.5% cash back across all purchases. 


Businesses can also utilize Ramp’s newest offering, the automated vendor management platform that tracks all vendors from one centralized hub.


Ready to streamline your business expenses and improve your business credit score? Check out Ramp today


Sources: 


Nerd Wallet

U.S. Small Business Administration

Experian
Fundera

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