How to Improve Your Small Business Credit Score

By April Maguire

2 min read

Every company with an established Employer Identification Number (EIN) has its own business credit score as well.

If your business doesn’t yet have a strong credit rating, you may find that banks and other traditional lenders are unwilling to work with you.

Here are a few steps to help you improve your small business credit score.

Match Spending to Income

Running your business within its means is helpful to build and maintain a high credit score. By having enough money to cover your bills–and paying those bills on time–you are building a track record demonstrating responsible money management.

Limit Your Credit Usage

A big factor affecting your business credit score is the amount of money owed to banks and other lenders. One common metric is the debt-to-equity ratio, which is a measure of a company’s financial leverage in relation to the amount of credit it is currently using.

Another metric is “credit utilization,” which deals only with available credit in relation to debt. Because a high ratio coincides with a low credit score, a good rule of thumb is to keep credit utilization below 30%.

Pay Bills on Time

Pay your bills on time. Paying your bills after the due date can cause your credit score to drop. Furthermore, the acquired late fees can accumulate and contribute to overall debt levels.

Additionally, business owners looking to improve their credit scores should aim to pay down current card balances.

If you can’t pay off balances, consider increasing your credit limit to improve your debt-to-equity ratio.

Avoid Closing Accounts

You may be tempted to shut down credit accounts that are at $0. However, closing too many cards can have a negative effect on your score, and it limits the amount of credit you have at your disposal.

Check Your Score Regularly

Periodically reviewing your credit report is a good way to avoid inaccuracies and errors that can cause your score to drop. Fortunately, Annual Credit Report lets you review your credit reports from the three credit bureaus (i.e. Experian, TransUnion, and Equifax) for free. You can receive one report from each bureau every 12 months, and you can request them all at once or request one from each bureau (i.e., get one report at a time at four-month intervals).

As a business owner, taking steps to build up your business credit can help you obtain funding if you need it and can provide you with more flexibility on the terms of that additional financing.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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