When you apply for a loan or other financial product on behalf of your business, a cautious lender will almost certainly check your business credit score and report, to see if you qualify for their services. The interest rate and conditions that will be offered to you will also be based on these parameters. You need a strong credit history in order to get a high credit score.
We return to the beginning and say that the best credit history is one that shows continuous repayments. This post will discuss how to break free from the credit cycle and increase your credit score. Small business owners frequently find themselves searching for outside finance sources in order to expand their companies. But you need to have a solid company credit score to be eligible for a business loan and other financing choices. There are various ways through which you can improve a small business credit score. Lenders, creditors, and suppliers can assess a company’s ability to pay them on time using the business credit scores. You can get bigger loans, lower interest rates, and even flexible payback terms if you know how to raise and to maintain your business credit score.
Keep Your Personal Finances and Business Separate
Some small business operators conduct both personal and professional transactions using the same bank account. For instance, you might be tempted to make a sizable, one-time equipment purchase using your personal credit card.
- The use of personal credit cards for work purposes, however, may affect your business credit score. The kind of business you run will determine the specifics. Lenders may assess your personal credit score as well as the histories of the partners and directors of your company if you operate a limited company, for example. If your personal credit is bad, you can acquire a loan with a lower amount or none at all.
- Keep in mind, banks and credit reporting agencies may also consider your personal credit score to determine your creditworthiness if you don’t have a separate business credit account. Due to the lack of a significant financial history of loans and repayments, this is frequently the case with start-ups and new firms.
- Make sure your business credit remains separate from your personal credit if you apply for and use a business credit card for business activities. Furthermore, your company credit score will keep rising as long as you make your repayments on time while maintaining your credit utilisation ratios under control. Your personal credit score has no bearing on your business credit score.
Legalize and Register Your Business
Create a legal and registered company entity as the first step in obtaining a business credit score. Many small businesses are simply an extension of their owners’ personal lives, but registering your firm gives it a distinct financial identity. With this newfound authority, you may begin constructing your company’s credit score.
Monitor Your CIBIL Score
You must maintain a record of your credit score because it is a crucial prerequisite for business loans. You can use it to identify the circumstances that are lowering your score and fix them. Also, you can request that the bank fix any inaccurate information that appears in your credit report.
Foster Positive Interactions with Vendors
Building solid, long-lasting connections with your suppliers is another thing you can do to increase your business’s credit score.
- You can open a credit account with a supplier if you’ve worked with them for a while and you always pay on time.
- Creating a credit account with your supplier is an excellent approach to raise your score because credit bureaus place a high emphasis on a company’s history of timely credit payments.
- Remember that not all vendors will disclose your excellent credit behaviour to credit reporting agencies. If you and your suppliers get along well, you might ask or remind them to mention your reliable payment history.
To Build Your Credit History, Use a Credit Card
Every lender considers your credit score when determining whether or not to grant you a loan, and a strong credit score requires that you have a respectable credit history. Although loans and credit cards are the main sources in the credit history, you can start with a credit card since obtaining loans without a credit score is more challenging. You can use credit cards to finance your company’s smaller, more immediate expenses also improve your credit score with credit card. The key is to continue paying your bills on time, even before you receive a bill reminder. This will ensure that you appear responsible with your payments and give you a head start on building good credit.
Don’t Shut down Your Accounts
A common error made by business owners is to close credit accounts and remove them from their credit reports. Yet, removing your credit history may harm your company’s credit rating. Closing a bank account and closing a credit account are two different things. Your credit score will not be affected if you close a bank account. Your history of timely payments affects your credit score even if you don’t utilise any older credit accounts. Your creditworthiness actually rises in direct proportion to the age of your credit line.
Keep an Eye on Your Business’ Credit Records
Make it a routine to check your business’s credit report and score at least a few times per year. You can stay informed and in charge of your financial affairs by frequently checking them.
If you sense that you are deviating off-course, you have plenty of time to correct yourself. Also, there is a risk that your report still contains an erroneous entry, which might be harming your score. You can immediately challenge any errors or inconsistencies you notice.
Visit the CRIF website, enter your information, and download a copy for your records to instantly check your business’ credit score and credit report. Keep in mind that your small business will be secure in the future if you have reliable finances and credit to rely on. Constant financial surveillance is the key to a good score.
