Although credit can save a small business's life, many businesses are unable to secure funding due to poor credit ratings. According to the Fed Reserve Banks' 2020 Small Business Financing Survey, 36 percent of businesses experiencing difficulties obtaining loans and credit lines were denied due to a poor credit score.
Many business owners are completely ignorant that their company has a credit score.
Lenders, vendors, and even potential partners may look at the credit score of your industry when deciding whether or not to work with you.
Lenders and credit card companies may use business credit ratings to analyze your creditworthiness before authorizing you for a loan or line of credit.
- Vendors who approve you for a net 30 account give you 30 days to pay once you've received your merchandise.
- Before engaging in a partnership or contract, potential clients and other agencies will undertake due diligence on your organization.
- Insurance companies determine whether your business should be insured and how much it will cost.
- Before investing in your firm, investors want to evaluate it.
The following are four elements that may have an impact on your company's credit score.
1. Ignoring it
A business credit report may contain accounts that belong to another company, as well as false information regarding the length of time you've been in business and the field you work in.
Because errors like this might harm your company's credit score, it's critical to review your credit report at least once a year.
You can get your credit report from any of the three main credit bureaus by ordering it online:
Experian
You can file a complaint if you notice any flaws in a company's dispute resolution method.
2. Applying for Credit too often
A hard inquiry appears on your credit report when you apply for a credit card or loan and the possible lender or creditor runs your credit history.
A single inquiry has little influence on your company's credit score in the vast majority of cases. Multiple hard queries in a short amount of time can hurt your credit score by hinting that you want to take on more debt.
Multiple identical queries within a week or two have little impact on your credit score, as credit rating firms realize that consumers usually shop about.
3. Maxing out Your Business Credit Card
Several corporate credit rating models employ your available credit rate, which is the amount you have accessible divided by the amount of credit you have. If you have a $1,000 credit limit and a $500 balance on a business credit card, for example, your credit use rate is 50%.
Even if you pay your account in full each month, if you max out your company credit card, your credit usage rate will be high. Your company's credit score may suffer as a result.
Businesses that use less than 30% of their credit limit are preferred by credit bureaus, so don't spend more than 30% of your credit limit on your card. You can also request a credit limit increase on your business credit card from your bank.
4. Missing Payments
Payment history is one of the most important variables that affect your company's credit score. Your credit score will suffer if you fail to make payments to lenders, credit card companies, or suppliers, and those late fines are recorded to one or more credit reporting bureaus.
Even accounts that aren't reported to the credit bureaus might have a negative impact on your company's credit score if they fall into collections or result in a line of credit.
Collections, liens, judgments, and bankruptcies are all public data that can appear on your company credit report for anywhere from 36 months to nearly ten years. Pay your utilities, vendors, lenders, and tax agencies on time, every time, to avoid this appearing on your credit report. A business-building organization can help you monitor and manage your company's credit score. Net 30 accounts, for example, are well-liked among business credit builders.
Businesses with good credit have access to resources that businesses with bad credit do not. To regain control of your credit, review and update your company credit report on a regular basis. If you need new credit, you'll have an easier time getting it.
