A business credit score, which is rated on a 0 to 100 scale, reflects a business’s ability to repay a loan.
Calculating Your Business Credit Score
Your business credit score is calculated using the statistical algorithm designed to measure several traits of your company and financial history.
Among these factors are:
- Credit use ratio
- Payment history
- Length of credit history
- Unpaid debts
- Public records, such as bankruptcies, liens, and judgments
- Business size
- Business risk
Some of the factors are similar to calculating a personal credit score. However, many factors are different in building business credit scores.
How to Build and Improve Business Credit Scores
Get a Business Credit Card or Line of Credit
Of course, the first step in building a business credit score is to get a business credit card. You can also get a line of credit for your business. Be sure you are getting a business credit card for your business financing, not a personal credit card for your finances.
Separate your Business and Personal Expenses
Separating your business and personal expenses is essential for avoiding accounting mistakes and building your business’s credit score. If you keep the business expenses mixed with your personal, there can be confusion when completing accounting tasks for the company.
Select your Supplier and Lenders with an Eye on your Business Credit
Many small businesses have incomplete business credit accounts because their dealers and money lenders don’t report costs to the business credit unions. If possible, choose vendors or lenders that report to one or all credit bureaus and keep your accounts current.
Pay Your Bills On Time or, Better Yet, in Advance
You must pay on time to ensure your business credit score is high. A delay in payments ruins your business credit, and a delay in payments from your company affects the cash flow of other businesses. This failure to pay on time is the same as when your clients do not pay you on time, and it badly affects the cash flow process of your small business.
Much of your business rating depends on how you pay your suppliers and other contractors within an approved time frame. Paying in advance or on the spot will improve your business credit. Your suppliers and contractors will make remarks like “prompt,” “pay early,” etc.
Other companies might also be experiencing cash flow problems. Early payments or payments made on time significantly reduce cash flow problems. Your business credit score measures the lending and credit risk linked to your company. A good business credit score shows that your company can manage debts and finances efficiently.
Utilize Credit, but Not Too Much
Your business should utilize its credit score, but make sure not to overuse it. It will be beneficial if you continue utilizing your business credit score for your business operations. You will keep building and using some of your credit scores. It is just like taking a loan and paying it back promptly. It builds trust in your business’s ability and financial stability. But consuming all of the credit score or too much of the score means your company is not financially stable and relies on the credit score it builds over time.
Fix Errors on your Business Credit Score Report
If there are errors in your consumer credit report, there is a fixed process for disputing them. However, there is a different process for business credit report errors everywhere. Every credit bureau has a process for disputing business credit errors. You can submit disputes electronically.
Conclusion
Using a business credit card or line of credit helps to build your business credit score. You must develop and keep improving your business credit score by making on-time payments, using the business credit card, and utilizing some of its scores to your benefit. These steps build a better and more trusted image of your business.
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