Access to credit can be a lifeline for a small business, but many owners struggle to get financing because of their company’s credit score. According to the Fed Reserve Banks’ 2020 Small Business Lending Survey, 36 percent of businesses that have difficulty obtaining loans and credit lines have been refused due to a poor credit score.
Many business owners are unaware that they have a credit score for their company.
However, your company credit score may be used by lenders, vendors, and even potential partners to determine whether or not to cooperate with you.
Business credit scores may be used by:
- Before qualifying you for a loan or line of credit, lenders or credit card issuers evaluate your creditworthiness.
- Vendors who are considering you for a net 30 account, offer you 30 days to settle your bill after you purchase their products.
- Before getting into a partnership or contract, potential clients and other companies will check to see if your company is financially solid.
- Insurance firms choose whether or not to insure your business and how much they will charge.
- Investors who want to assess your business before putting money into it.
Here are four factors that could be hurting your company’s credit score.
1. Ignoring it
A business credit report may contain accounts that belong to another firm, inaccurate information about how long you’ve been in business, and even the industry in which you operate.
Because mistakes like this might affect your company’s credit score, it’s critical to review your credit report at least once a year.
Each of the three major credit reporting companies has a website where you may order your report:
- Equifax
- Experian
- Dun & Bradstreet
If you notice any mistakes, you can seek a correction through each agency’s dispute resolution mechanism.
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 reviews your credit record.
Your business credit score is usually unaffected by a single inquiry. Multiple hard inquiries within a few months might have a negative influence on your credit score because they indicate that you intend to take on additional debt.
Multiple queries of the same sort within a week or two will not affect your credit score, as credit rating bureaus recognize that it’s natural for consumers to rate shop.
3. Maxing out Your Business Credit Card
Some business credit scoring models use your credit usage rate or the amount of credit you have available divided by the total amount of credit you have. For example, if you have a $1,000 credit limit and a $500 amount on a business credit card, your credit utilization rate is 50%.
Even if you pay the bill in full each month, your credit usage rate will be high if you max out your business credit card. Your company’s credit score may suffer as a result of this.
Businesses with a usage ratio of less than 30% are preferred by credit bureaus, so don’t use more than that percentage of your card’s credit limit. You can also inquire about increasing the credit limit on your business credit card with your bank.
4. Missing Payments
Payment history is one of the most important elements that affect your company credit score. Your credit score will suffer if you fail to make timely payments to lenders, credit card companies, or suppliers, and those late payments are recorded to one or more credit reporting bureaus.
Even accounts that aren’t reported to the credit bureaus might have a negative influence on your business credit score if they go into collections or result in a line of credit.
Collections, liens, judgments, and bankruptcies are all public records that appear on your company credit report and can last anywhere from 36 months to nearly ten years. Pay your utilities, suppliers, creditors, and tax agencies on time, every time, to avoid these appearing on your credit report.
Businesses with good credit scores have access to options that businesses with bad credit don’t have. Take charge of your credit by examining and maintaining your business credit report on a regular basis. When you need new credit, you’ll have a simpler time getting it.
