By the time you start a business, you have become very familiar with the importance of your personal FICO score. Soon after it’s established, though, your business has its own credit rating.
As the owner, it’s your responsibility to maintain good business credit. A business credit score works similarly to a personal score in terms of getting you the best loans and credit opportunities.
Even if you never plan on taking out a loan in the future, you should keep your business credit on solid ground. You’ll still need this to enact regular business operations, such as working with suppliers and taking out insurance policies.
Keeping good business credit isn’t automatic, though. It requires smart financial planning on your part. Make sure you’re following these strategies to get your business the highest credit rating you can.
1. Understand Your Score
A FICO score is made up of different categories, from on-time payments to length of credit history. Your business score uses other factors in its credit rating formula, such as:
● Length of time in business
● Annual revenue
● Assets and debts
● Personal and business credit history (on-time payments, charge-offs, bankruptcies)
● Any public records against you or your business
● The industry you’re in and how risky it is
Unlike a personal score, which can range from 300 to 850, a business credit score goes to 100. Personal scores go through three credit bureaus: Experian, Equifax, and Transunion.
Business lenders, on the other hand, don’t use these credit bureaus. Instead, they choose a rating agency, each of which has its own standards. They have their own formula that uses some or all of the above factors to come up with a creditworthiness number for your business.
Regardless of which rating agency is used, most lenders prefer a business credit score to be at least 75 before they’ll consider a company to be a good risk.
Lenders aren’t just banks, though. They also include your suppliers, who can run a business credit check on you to decide the terms of your contract with them. When you keep an eye on your business score, you can negotiate those terms to get the best possible deals.
2. Automate Your Processes
Paying your bills on time is quite possibly the most important part of good credit. As with your personal score, your business credit rating uses this to determine your financial reliability.
When you run a business, those expenses can pile up fast. You may have the money to pay them, but if you miss a due date, you’ll be hit with late fees and a credit score reduction.
The best way to prevent this from happening, and to make things easier on you, is to automate everything you can. Talk to your creditors and check to see if they offer incentives for automated payments. Some businesses provide a discount to companies who set up automatic withdrawals.
Many small and medium business owners are concerned about setting up automatic payments. They rely on clients to pay their invoices on time. This can be erratic, with some months making a profit and others barely scraping by.
Automating your invoice collection process solves this problem. Now gives a great overview of some clever ways to put invoice collection on autopilot here.
The small flat fee charged by the invoicing company pays for itself. When you know what’s coming in, you can prevent late fees and keep good business credit. You don’t have the hassle of uncertain collections, and you can choose which invoices to submit to the company and which ones to handle yourself.
3. Use Credit Cards in Moderation
Some financial experts recommend never using a credit card. However, if you can handle the responsibility, this is a great way to keep your business credit in good standing.
Part of your business’s score is the utilization of available credit. If you’re overusing your spending, it’s a red flag to potential lenders who may think your business is having financial difficulties.
On the other hand, not having any open credit means this score is low by default. You can’t have low utilization if you don’t have any credit to borrow from. That’s when a business credit card comes in handy.
Use your card for small daily expenses, such as fuel and travel. As long as you keep the balance low, you should be able to pay it off each month. This revolving credit shows you know how to handle your finances.
Look for credit cards that reward you with relevant perks, too. Some companies offer cash-back incentives or fuel perks. Others give you frequent flyer miles, but if you don’t travel often, this isn’t a card that would be a good fit for your business.
With so many credit card companies offering incentives, find one or two that have perks that will save you money. Then use these cards for your daily expenses and pay them off each month.
Conclusion
Having good business credit will come in handy as you continue to grow your company. It’s part of your overall reputation, and not having to worry about getting approved by a supplier or lender is priceless.
With these tips, you’ll be able to keep your business’s credit rating in good standing. Since you won’t have to worry about your score, you can focus on your future financial goals!
