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How to improve your business credit score

by OnDeck Australia,   May 26, 2021

Just like with your personal finances, your business also has a credit score attached to it. Your business credit score is critical in managing your business finances, but how do you improve it?
Let’s look at business credit scores and some tips on how to improve yours.

What is a business credit score?

Your business credit score is indicative of your financial stability as a business, especially in the eyes of banks and lenders. Just like a personal credit score, a business credit score helps lenders determine your reliability when it comes to paying off debt. The lower your credit score, the harder it is to access finance.

How are business credit scores calculated?

Business credit scores are calculated by averaging out a range of factors that are considered relevant to your ability to repay debt. This includes:
  • Your borrowing and repayment history
  • Your level of credit utilisation
  • Demographic information such as the location of your business
  • Public record information like any legal filings against your business

Anything that a lender can construe as influencing your ability to pay off debt is considered in your business credit report. Some of these factors will be out of your control, while others will be impacted by the financial decisions you make.

What is a good business credit score?

Your business credit score ranges from 0 to 1200, based on the strength of your business credit profile. Scores are divided into bands that range from Poor (0-509) to Excellent (833-1200).

A Good credit score would range between the extremes (509-833). While this band is better than Poor, you should strive for Excellent so that your business can access finance more easily.

 

Tips for improving and maintaining your business credit score

Here are some tips to help you improve and maintain a favourable business credit score:

Pay bills and loan repayments on time

Paying bills on time and meeting your debt obligations are the most impactful behaviours for your business credit score. Being unreliable with any of your monetary commitments will reflect poorly on your credit score. Maintaining a good standing with your creditors is key to ensuring they don’t report you, which can severely impact your score.

It can help to leverage accounting software or even hire an accountant so that you can ensure your financial obligations are always met. You must keep a close eye on your cash flow so that you know you can pay your dues on-time.

If you run the numbers and find that you can’t make a payment on time, contact your creditors as soon as possible. Most will be forgiving if you are upfront with them, making it less likely they will report your business.

Minimise your debt and credit utilisation

While it’s not simple to eliminate debt overnight, minimising it as much as you can and keeping your credit utilisation low is one of the best things you can do to improve your business credit rating.

While it may sound counterintuitive, opening a new line of credit can improve your business credit score. The new line of credit will increase the maximum amount of credit available to your business, making your current usage ratio shrink as a result.

Ensure your credit report is accurate

If there are factual errors in your credit report, you should engage a dispute resolution process to get it fixed. Any reporting errors, either made by you or a creditor, need to be resolved so that you are not suffering unfairly due to inaccurate information.

Create credit accounts with your suppliers

If you are routinely engaging the same suppliers to run your business, it can help create a
credit account with them. This will ensure your reliability in paying the supplier is reflected in your credit report, boosting your score.

Check your business credit score often

Maintaining a good business credit score means you need to stay in-the-know, monitoring your score for any sudden dip and taking a course of action to correct it. Checking your credit score can be tricky since it will usually be negatively impacted if you check it through a bank or lender. OnDeck allows you to check your credit score for free, with no obligation or footprint.

 

Frequently Asked Questions

How can I build my business credit fast?

One of the fastest ways to build your business credit is to take out a line of credit and use it responsibly, paying off your balance in full each month. This will quickly demonstrate your ability to pay off debt reliably.

How can I fix my business credit?

To fix your business credit, you need to repair your credit profile by adopting positive financial practices. This includes paying bills on time, keeping credit utilisation low, and maintaining a good relationship with your creditors.

How do you build business credit?

To build your business credit, you need to generate a record of financial behaviour, such as paying monthly bills and loan repayments. The better you are at managing your financial obligations, the higher your business credit will climb.

How do I build up my business credit without using my personal credit?

Your business credit and personal credit are not connected and are calculated based on different sets of data. A lender may review your personal credit before approving a business loan if you have no business credit history.

 

Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong to or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at May 2021. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.

 

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