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How to Improve Your Business Credit Score

Find out what a business credit score is, why it matters, and what you can do to increase your business's score.

Finance your BusinessFinancesFinancing

By Pipe  January 11, 2024

As a business owner, you know that a strong credit score can be crucial for success. Improving your business credit score can seem like a daunting task, but with the right steps, you can take charge of your finances and build a strong credit history that will benefit your business for years to come. In this article, we'll guide you through understanding your business credit score, building your credit history, and how Pipe can help foster growth and creditworthiness.

What is a Business Credit Score?

Business credit scores are provided by credit reporting agencies such as Dun & Bradstreet, Experian, and Equifax. These scores are based on your business's credit history, including your payment history, debt-to-income ratio, and other financial factors that reflect your ability to repay your debts. Unlike personal credit scores that range from 300-850, business credit scores range from 0 to 100, with higher scores indicating better creditworthiness.

How to Check Your Business Credit Score

You can get a copy of your business credit report from Dun & Bradstreet, Experian, and Equifax. However, unlike your personal credit score, you’re not guaranteed a free copy annually and may have to pay a fee to these providers for access. Checking your business credit score regularly is a great practice–it helps you regularly track your progress and easily identify areas for improvement. 

Factors that Influence Your Business Credit Score

Several factors impact your business credit score, including:

  • Payment history: Making timely payments is crucial for building a strong credit history.

  • Credit utilization ratio: How much of your available credit you're using can impact your score. It's best to keep your credit utilization ratio below 30%.

  • Length of credit history: The longer your credit history, the better it reflects your ability to manage your finances.

  • Number of credit accounts: A well-diversified credit portfolio can help you build a strong credit history.

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How Credit Scores Affect Loan Approval

If you’re looking for more traditional funding, your credit score can play a critical role in whether you're approved, what interest rate you're offered, and your terms. 

The Role of Credit Scores in Lending Decisions

Many lenders use your credit score alongside additional factors to determine your creditworthiness. A high credit score indicates to lenders that you're a low-risk borrower who is likely to make on-time payments on your loan obligations and increases your chances of loan approval

On the other hand, applicants with low credit scores may be viewed as higher risk and face more stringent loan terms or even loan denial. This lower score could be from a variety of factors, like a history of late payments, defaults on previous loans, or simply not being in business for very long, making them less attractive to lenders. 

Unfortunately, a credit score isn’t always the best way to assess a company’s creditworthiness. Some companies are penalized for being young, and others for previous struggles (for example, during the COVID-19 pandemic) even though they’re performing well now. 

Interest Rates and Loan Terms Based on Credit Scores

With many lenders, credit score can significantly affect the interest rate and loan terms you'll qualify for. Companies with lower credit scores may have to pay higher interest rates to compensate for their higher risk level, or may not be able to access financing at all. 

Having a higher credit score may also allow you to qualify for more favorable loan terms, such as a longer repayment period, higher loan amount, or no collateral. This is because lenders view borrowers with high credit scores as less risky and more likely to repay their loans on time. You can build and maintain a good credit score by making on-time payments, keeping your debt levels low, and monitoring your credit report regularly.

Establishing a Strong Credit Foundation

Building a strong credit foundation is essential for any business looking to grow, and typically involves key elements like a positive credit history, managing credit responsibly, making timely payments, and keeping debt levels in check. But we’ve compiled some additional practices that can have a big impact on your credit.   

Register Your Business Properly

Registering your business properly with the appropriate Secretary of State office for the jurisdiction(s) in which you operate is the first step towards building a strong business foundation. Not only can doing so protect your personal assets, but it can also help establish credibility as a business separate from your personal finances. When registering your business, think strategically about the legal entity that best suits your needs. For example, a corporation or LLC may provide additional protection and credibility.

Open a Business Bank Account

Opening a business bank account is essential for managing your finances and building a strong credit history. It allows you to keep finances separate rather than commingling business and personal finances, which can jeopardize the liability protection afforded by a corporation and put your personal assets at risk. To find the bank that best suits your needs, compare the factors that matter most to you, like fees, interest rates, customer service, or small business perks. Many FinTechs offer convenient business bank accounts with additional features to help you run your business.

Get a Business Credit Card

A business credit card can help you build a strong credit foundation. Make sure to follow best practices by making timely payments and keeping your credit utilization ratio under 30%. Keep an eye out–many business cards offered by Banks and FinTechs offer perks and incentives on your business spending.  

Establish Payment History

Establishing payment history means making timely payments on all loans, credit cards, and other financial obligations. You can set up automatic payments to ensure that payments are always made on time. By establishing a strong payment history, you can build credibility and increase your chances of obtaining additional financing in the future. 

Check Your Credit Report Regularly 

Monitoring your credit report is essential to identify errors or inaccuracies that may be impacting your credit score. Plus, it can help you identify areas for improvement and make adjustments to your financial plan as needed.

Building Your Business Credit History

Building your business credit history takes time and effort, but with the right steps, you can establish a solid credit history that reflects your business's creditworthiness. 

Work with Vendors that Report to Credit Bureaus

Working with vendors that report to credit bureaus can help you build credit history. If they don’t already do so, you can also ask them to report your payment history, which will help show your reliability over time. 

Pro-tip: Partnering with reputable vendors can help establish a positive reputation and fosters trust among lenders and suppliers, so it’s alway important to evaluate the reputation and the quality of their products or services of potential vendors. 

Monitor Your Credit Utilization Ratio

The amount of credit you're using can impact your credit score. Keep your credit utilization ratio under 30% to avoid hurting your score. If you're using too much of your available credit, consider paying down your balances or requesting a credit limit increase.

Maintain a Healthy Debt-to-Income Ratio

Your debt-to-income ratio is the amount of money you owe relative to your income. Maintaining a healthy debt-to-income ratio is crucial for building a strong credit history.

It's also important to have a solid business plan in place and to monitor your cash flow regularly. This can help you avoid taking on too much debt and ensure that you have the resources to pay back any loans or lines of credit that you take on.

Conclusion

Improving your business credit score requires time and effort, but by following the practices above you can establish a strong credit history that reflects your business's creditworthiness. 

Credit score problems, or even a lack of credit history can make financing a challenge for many businesses. Pipe understands that creditworthiness goes beyond a credit score. Unlike lenders, our approval process is based on your revenue and the health of your business, never your credit score. Sign up today to access working capital that can help you manage your cash flow and run your business more efficiently. 

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