Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
How to Escape Bad Business Credit and Push Your Business Forward
Just as bad credit can hurt you in your personal life, bad credit can also hold your business back from obtaining the opportunities it needs to thrive. If you have bad business credit, it’s time to get serious about the matter and actively seek to repair the damage.
Why Business Credit Matters
You may not have spent much time thinking about your business credit score in the past, but it actually plays a key role in the long-term success of your company.
“Ultimately, your business credit score measures your company’s overall financial health,” financial analyst Ian Atkins explains. “It’s typically used by lenders, creditors, and trade partners during various business transactions, such as applying for business loans, leasing, winning contracts, doing business with vendors or suppliers, obtaining net terms with trade partners, and even getting better mortgage rates.”
A good business credit score helps you get friendlier financing terms. It also shows potential lenders and business partners that you’re trustworthy and safe to work with. A bad score, on the other hand, indicates that you’re on shaky financial footing and lowers your chances of getting good financing terms (if you’re approved at all).
Business credit scores normally range from 0 to 100. The higher the number, the better. Every institution has its own measure of what a good score is. Dun & Bradstreet look for a score of 80 or higher. Equifax classifies “good” as 90 or higher. Experian looks for scores of 76 and up.
If you have a score below these thresholds, you’re doing your business a financial disservice. The sooner you correct the issue, the stronger your financial future will be.
4 Tips for Improving Bad Credit
Much like your personal credit score, a business credit score can move up or down over time. If your business currently has a low score, here are some tips for getting ahead:
1. Know Your Options
For starters, you need to figure out a way to manage before you build your credit score back up. If you absolutely must have a loan right now, there are options available to you.
“There are numerous alternative lenders that offer loan solutions for businesses with bad credit. Small businesses can apply for loans, lines of credit or cash advances all through alternative lenders,” Revenued points out. “Alternative lenders can be more flexible with lending options for a wider range of clients, such as small businesses, startups, freelancers and entrepreneurs.”
2. Pay Bills on Time
The best thing you can do is pay your bills on time. Your bill payment history may account for more than one-third of your total business credit score. Even if it’s just the minimums, make sure you’re staying current. If you’re in a financial situation to lower your debts by making extra payments, you absolutely should.
3. Check Your Credit Report
Always check your business credit report at least twice per year. Much like personal credit reports, your business report is highly susceptible to errors. When these errors go undetected, they unjustly drive your score down.
If you find errors on your credit report, you’ll need to go through the proper steps to have them appealed and corrected. While it may take a few months, removing these errors will eventually have a positive impact on your score.
4. Lower Debt on Revolving Accounts
Another factor that dramatically impacts your credit score is your utilization rate. In other words, how much debt you have compared to the amount of credit available to your business.
“For example, if you owe $5,000 on a credit card and have a credit limit of $10,000, you’ve used up 50 percent of your available credit. That means you would have a 50 percent utilization rate, which is very high and likely to hurt your credit scores,” Maxine Sweet writes for Experian.
When trying to improve your credit score, you want a utilization rate below 30 percent on all accounts combined. If you’re able to get closer to 20 percent, you’ll see an even bigger increase in your credit score.
Set Your Business Up for Success
You might not feel the adverse effects of bad business credit right now, but you will. There will eventually come a time where you’re turned down for a loan, offered a horrible interest rate, or told that you can’t rent an office building. And at that point, there isn’t a whole lot you can do.
In order to avoid situations like these, you need to focus on your bad business credit starting now. By slowly, incrementally chipping away at the factors that are holding you back, you can give yourself a stronger foundation for the future – and you can’t ask for much more than that.
Copyright 1995-2021, Idea Cafe Inc. Downloads are for personal use only, not for resale to others, and may not be reprinted in any form without written permission from Idea Cafe Inc.
DISCLAIMER: We hope whatever you find on this site is helpful, but be cautioned that it may not apply to your own situation, or be totally current at any given time. Idea Cafe Inc. and all of its current and past experts, sponsors, advertisers, agents, contractors and advisors disclaim all warranties with regard to anything found anywhere on this family of websites, quoted from, or sent from Idea Cafe. and its related sites, publications and companies. We also take no responsibility for comments published by others on these pages. TRADEMARKS: The following are Registered Trademarks or Servicemarks of DevStart, Inc.: Idea Cafe®, Online Coffee Break®, The Small Business Gathering Place®, Take out Info®, Biz Bar & Grill®, Complaint-O-Meter®, A Fun Approach to Serious Business, CyberSchmooz, and BizCafe.
DISCLAIMER: We hope whatever you find on this site is helpful, but be cautioned that it may not apply to your own situation, or be totally current at any given time. Idea Cafe Inc. and all of its current and past experts, sponsors, advertisers, agents, contractors and advisors disclaim all warranties with regard to anything found anywhere on this family of websites, quoted from, or sent from Idea Cafe. and its related sites, publications and companies. We also take no responsibility for comments published by others on these pages.
TRADEMARKS: The following are Registered Trademarks or Servicemarks of DevStart, Inc.: Idea Cafe®, Online Coffee Break®, The Small Business Gathering Place®, Take out Info®, Biz Bar & Grill®, Complaint-O-Meter®, A Fun Approach to Serious Business, CyberSchmooz, and BizCafe.