All small business owners want to establish and maintain good credit scores. Many businesses – as well as clients and lenders – are interested in your credit score, so it’s very important to maintain a good one. If you need to boost your rating or review your score, here are five tips to see you on your way.
How is Your Score Determined?
Much like your driving record, business credit ratings reflect your past and present behaviour. Independent credit bureaus, such as Veda, assess business credit ratings on several factors such as overdue accounts, arrears or a history of bankruptcy. These factors make up your final credit score. The less trouble you’ve run into in the past, the better your score.
1. Stop Applying for Credit
One of the contributing factors to poor business credit scores is frequent shopping for credit. Companies that look for loans more often than others are assessed as riskier by credit bureaus. Every time you apply for credit, a credit provider gets a copy of your credit score and these applications are noted in your history. Lenders can take a negative view of multiple applications.
Another factor that goes into your score is the age of the company versus its credit history. So if you’re a young company, it might not be wise to be up to your eyeballs in debt or paying off multiple loans at once.
At the very least, be careful about where you apply for credit. Credit bureaus rank lenders, so try to stick to the big four banks if you can. Don’t rule out other non-traditional lenders if you are rejected by a bank. Just remember to be smart and do your research before taking the plunge.
2. Take a Tough Line Towards Directors
One of the most powerful indicators of business credit risk is a company with a director who has a history of bankruptcy, court judgments and external administrations. If you want to boost your credit score, unfortunately you’re going to need them to step down from such a prominent role in the business if they have had these issues in the past. This can be quite tricky, particularly if you walked in knowing the director had a murky past, but it’s necessary for progress.
3. Tidy up Your Company Information
Pull your credit score and assess it for inconsistencies. Credit bureaus source their information from ASIC and other independent sources, but not from you – the owner. Sometimes mistakes are made, or the details the credit bureau has are out of date. Cleaning up these mistakes will give you an immediate bump in your credit rating.
4. Pay What You Owe
Any outstanding debts that have been flagged with the credit bureau will drag down your score. Pick up the phone and talk to your debtor, and try to organise for them to inform the appropriate parties that your debt is paid as soon as you pay it.
Good credit can help your business take money when you need it, say if you want to pursue quick expansion, so it’s vital to get your house in order. When in doubt, consult a professional financial advisor to help you navigate your credit score.