7 Tips to Fix your Business Credit Score

fix your business credit score

If you are a business owner with big plans for your business, then you want it to thrive. If you want your business to thrive and grow, building and maintaining good credit is an absolute necessity. Unfortunately, we don’t live in a perfect world. Your credit score might not be what it should be and now might be the time to repair it.

We know how it can sometimes be… Clients don’t pay their invoices for your products or services. That then prevents you from being able to pay your debts and invoices before they become overdue. It’s frustrating and embarrassing. But, it’s one of the realities of being a business owner.

What can you do to repair your business credit score once you get to the right side of a rough patch?

Here are some strategies to help you to repair your business credit score. This will in turn, help pave the way for your long-term business success.

1. Make Payments On-Time

Past-due payments can affect your business credit scores and ratings. It will also serve to sour relationships with your vendors. Making on-time payments can be an important part of rebuilding business credit. This is especially true when asked for trade references. It is important that these are your suppliers with whom you have a great history.

Paying your debts on time can help show a record of financial responsibility. This will then help you repair your business credit score.

If you’re not in a position to pay off all your debts on time, it is a great idea to start with the largest invoices. You may be able to limit damage to your business credit file if you first cover the costliest debts owed.

If you’re struggling with making timely payments, you should reach out to your creditors. Negotiate more favourable terms with them directly.

2. Reduce Your Debt On “Revolving Credit” Accounts

Credit scores are very much affected by how much debt you have. Lenders also consider your utilisation rate. In other words, they’re going to analyse how much debt you have vs. the amount of credit available to you.

An example of this would be, if you owe $5,000 on a credit card and have a credit limit of $10,000. You have used up 50 percent of your available credit. That means you would have a 50 percent utilisation rate. This is deemed to be very high and is likely to hurt your credit score.

When reducing your debt, you want your utilisation rate to be under 30 percent. This applies to all your revolving accounts. In a perfect world, you should only put on credit whatever you can payoff each month.

Here are the steps to help you find credit cards with high utilisation rates:

  • Review the last credit card billing statement for each card
  • Write down the credit card debt owed
  • See what your credit limit is for each card
  • Divide your credit card debt by your credit limit (and then multiply by 100)
  • Calculate your utilization rate for each card and identify any cards over 30 percent – these are the cards to really focus on reducing.

3. Rehabilitate Past-Due Accounts

All’s not lost if you’re past due on an account. Contact the creditor or lender and strike a deal with them. Ensure that it states that if you make at least 6 to 9 consecutive payments on-time, they’ll remove any negative marks from your account.

Since this isn’t something that lenders frequently offer, or are required to do, you’ll have to reach out and negotiate with them. Do it in a friendly manner rather than having an entitled attitude!

4. Open Accounts and Don’t Close Any

Every small business owner should have at least one to two credit accounts. Despite the fact that “no credit” doesn’t equate bad credit, there is nothing for lenders to use in evaluating your credit history. It is likely that in these circumstances you will be turned down for a loan.

When you do open new accounts or lines of credit, set-up automatic payments so that they’re paid on-time and, make sure that you do not open too many accounts. Stick with the accounts that you need.

Additionally, closing accounts doesn’t always repair your business credit score. In fact, it could do damage to your score. If you have a credit card you have not used in a while, make a small purchase and pay it off immediately. Keeping an account open increases your overall debt availability. That in turn raises your business credit.

5. Add Positive Trade References

Adding positive payment experiences with suppliers, vendors or business partners may have a positive impact on your business credit scores.

Be aware though that not all vendors and suppliers share payment data with a business credit-reporting agency.

It’s a number of trade experiences reporting on your business credit report that generates a business credit rating. For a Paydex Score with Dun & Bradstreet, for example, you’ll need at least three trade references.

6. Keep Business and Personal Finances Separate

It is important to keep your personal and business finances separate. Of course, it matters to the ATO, but it also makes applying for business credit easier.

If you use items for personal purposes, you can’t deduct them as business expenses and use them to offset your business income. If you don’t keep these costs separate, you could be subject to an audit.

Separating your business and personal finances makes your record-keeping less complex. It makes analysing your budget easier.

Negative marks on your personal account could lower your business’s credit score if they are not separated. The easiest ways to keep these accounts distinct from each other is to have separate bank accounts and lines of credit.

7. Get a Secured Bank Loan

While loans can help rebuild your credit, what can you do if you don’t qualify for an unsecured loan? You could get a secured bank loan.

Secured bank loans don’t require the same level of credit scores because it is protected by an asset. For example, when you purchase a car, the bank holds the title until the vehicle is paid off. But, if you already own a vehicle or a savings account or a certificate of deposit, then those could be used to get a secured loan.

Before applying for a secured loan, make sure that you have enough money to make the payments each month. If so, then this is a solid strategy in repairing your business’s credit.

If you are looking for new equipment using business finance and would like to talk to a finance specialist, then give me a call. I have been in the finance industry for some years and I have a great relationship with a wide range of financial institutions. If you have a problem with your credit score, I can guide you on how best to repair it and put you in touch with a great company who actively help clients repair their scores. Speak to Shannon on 0419 939 619.

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