Monthly Challenge Series: Improve Your Business Credit Score

Keeping your business up and running is no small feat. From managing day-to-day tasks to handling profit outlook for the year, there are only so many things you can tackle each day.

Bettering your business credit is probably not at the top of your to-do list, nor does it need to be. Still, it’s something you should be keeping in mind. Almost every aspect of running your business affects your business credit score, and it’s essential you make decisions with the goal of improving that score to help stimulate growth and profits.

Understand What Goes Into Your Credit Score

Before you can start improving your business credit score, you first need to understand the factors that go into the score. While similar on a macro-level to personal credit scores, business credit scores have a number of micro-level differences. The biggest of these is that businesses are rated on a score of 0 – 100, with zero being the worst and 100 being perfect.

The main factors that go into determining a score include:

• Number of business transactions completed with vendors
• Any outstanding balances
• Your payment habits (i.e., do you pay on time, or are you habitually late with payments?)
• The amount of business credit you have
• How much of that credit you are using
• How many years your business has been open
• The size of your business

This is by no means an exhaustive list, but it does contain the aspects that affect your business’s credit score the most.

Who Determines Your Business Credit Score

Business credit scores, like personal credit scores, are determined by three major credit bureaus. Experian and Equifax may sound familiar since they handle personal credit reporting, but they are also two of the major bureaus for business credit scores. The third major bureau is Dunn & Bradstreet (D&B).

It’s important to note that each of the bureaus tabulates credit scores a little differently. Don’t be alarmed if you find your business credit score varies slightly from bureau to bureau — that’s normal.

Keep Your Information Up-to-Date

Of the three bureaus, D&B is the only one that focuses purely on business. Most vendors and other businesses will check your rating, data and performance reviews on D&B before signing any business or trade deals with you, so it’s key that you keep your information up-to-date and as accurate as possible. Because each credit reporting bureau tabulates your score a little differently, you should strongly consider requesting a separate report from each of the bureaus to check for any possible errors. Here’s a little insight on what each report will look like:

Dun & Bradstreet: The D&B rating is based on your company’s annual financial statements and other general reports about your company. This includes reports that your vendors and suppliers make about your business transactions Making sure your information is accurate is especially important to keep this rating high.

Equifax: Reports are based on and reflect your company’s credit actions, i.e., how you use your business’s credit cards and credit from banks or other alternative financial lenders.

Experian: Credit reports from this bureau use a mix of factors that D&B and Equifax each use separately. Your Experian business credit score will reflect things like public record filings, corporate financial information, payment habits, vendor/supplier interaction and how you use your business credit.

Have Your Suppliers Rate Your Business

As you now know, two out of the three major business credit reporting agencies your interactions with vendors and suppliers. Having a good relationship with them is key to maintaining and, of course, improving your credit score. Your vendors and suppliers can rate your interactions whenever they please, so make sure you’re making your payments are on time and building a trusting relationship. You can also request that they rate any positive interactions, which they should be more than happy to do if you’ve built a solid working relationship.

On-Time Payments Are Good. Early Payments Are Better

Paying your bills on time is a must for keeping your credit score at a healthy level. But did you know that making early payments can actually boost your score? It’s worth taking the time to go over your monthly budget and see if you can manage paying off bills before they’re due. Business credit reporting bureaus will take notice — in fact, making early payments is the only way you can earn a perfect score from Dun & Bradstreet.

Use Lenders That Report to Credit Bureaus

You may think that all lenders report to the three major bureaus, but not all do so. Working with a lender that does report can make a positive impact on your credit score. Dun & Bradstreet and Experian both base their credit ratings of your business on how you use your credit, i.e., the loans you use to run your business. Most banks report to credit bureaus, but you’ll need to check if you’re using an alternative lender.

Tip: If your business has the financial history and records to do so, request a higher credit limit on your business credit card — even if you don’t need it and don’t plan on using it anytime soon. Having the higher limit proves your trustworthiness and responsibility, and the business credit reporting bureaus will take note.

References:

(n.d.). How to improve your business credit score. Retrieved January 23, 2017, from http://www.experian.com/small-business/build-business-credit.jsp

(n.d.). Improve your business credit. Retrieved January 23, 2017 from http://www.experian.com/small-business/improve-business-credit.jsp

(February 13, 2015). Understanding the three major Business Credit Bureaus. Retrieved January 23, 2017, from https://www.score.org/resource/understanding-three-major-business-credit-bureaus

Nykiel, T. (December 1, 2015). How to build business credit in 5 steps. Retrieved January 23, 2017, from https://www.nerdwallet.com/blog/small-business/how-to-build-business-credit-small-business-loans/