5 Things You Can Do Right Now to Improve Your Business Credit Score
Your company’s credit score is a valuable asset. With access to credit, you have more control over your cash flow and can access the extra cash you need to fund business growth, whether that means making a capital purchase, hiring more staff, leasing a larger space, or purchasing larger volumes of raw materials.
Yet a surprising number of business owners don’t know how their business credit score is established or what steps they can take to protect it. Many assume that as long as they avoid defaulting on a loan, they’ll be able to qualify for the credit they need when they need it. However, the reality is much more complicated.
In this article, we’ll look at five things every business owner can do right now to strengthen their company’s credit profile and improve the chances that suppliers and lenders will extend credit to them when they need it most.
See whether your company has a credit file
Many business owners don’t realize that their company may already have a file opened with one or more credit agencies. Any credit agency can open a file on your company without your knowledge or permission. That file may include publicly available data as well as information submitted by the banks and suppliers that do business with you.
For many companies, the first step in choosing whether to do business with your company is to look up your credit file. The information that’s on file will also influence their decision to extend you credit or more favorable payment terms.
Every business owner should make it a priority to see what is in their file. There are many credit agencies out there, including TransUnion, Experian, and Equifax to name a few, but the oldest and most well-known business credit reporting agency is Dun & Bradstreet, so it’s a good idea to start your search there. Find out whether your business is included in their files, and request a copy. (They may charge a fee for this service.)
If you don’t have a credit file, open one
If your business is relatively new, or if you have never applied for or received credit, you may discover that you don’t have a credit file open with any of the major credit agencies.
In that case, your next step is to open one by applying for a D-U-N-S Number with Dun & Bradstreet. Opening your file and receiving a D-U-N-S number gives your company credibility and offers other businesses a way to access trusted information about your credit history.
Be sure to provide as much information for your file as possible, because this will result in a more complete profile and a higher credit rating. Plan to supply financial information, information about your management team, the officers of the company, your length of time in business, the number of people you employ, and anything else that could enrich your profile. The more information you provide, the more likely other businesses are to feel comfortable about doing business with you on favorable terms.
Monitor your credit score regularly
You probably already monitor your personal credit score on a regular basis: it’s an equally good idea to monitor your business credit score. While you can request a copy of your company’s credit report at any time from Dun & Bradstreet, you may want to sign up to receive alerts so that you know whenever a change is made to your file.
Monitoring your credit profile enables you to see how your business activities are affecting your credit-worthiness, and it also ensures that you’re aware of any information that could have a negative impact on your ability to get credit. Remember, credit agencies aren’t infallible. Sometimes they receive and post incorrect information, and checking in regularly ensures that you can correct any inaccuracies quickly.
Encourage vendors to report on you
You can build up your credit history by making sure vendors know your D-U-N-S number and by encouraging them to report on your payment activities. You can also contact Dun & Bradstreet to ask them to contact vendors who don’t already report to them. It’s in the credit agency’s best interests to collect the most complete and thorough data, so they have an incentive to reach out to these vendors on your behalf to request information.
Carry some business debt
Some business owners see it as a point of pride that they can always pay cash up front. But while having access to ready cash is a good thing for a business, it’s equally important to build up your access to credit and carry some debt—as long as you carry it responsibly.
Most new supplier relationships will begin with a payment-in-advance or cash-on-delivery arrangement, but with a pattern of reliable payment over a period of six to 12 months, you can request a credit limit with payment terms of net 15 or 30, and you may even be able to negotiate a discount for early payment. Once you have demonstrated that you can stay within that credit limit for a year, the supplier may be willing to increase the credit limit or extend the payment terms further.
You may also consider applying for a corporate credit card solely for the purpose of establishing your responsible use of another form of credit. However, only do this if you’re confident that you have the discipline to pay off the balance, in full, month after month. Any activity that demonstrates that you can borrow responsibly against a credit facility, whether it’s a credit card, bank loan or trade credit, will enhance your credit-worthiness and access to additional credit.
Credit is a valuable business asset
Without access to credit, it can be difficult to manage your cash flow, and even more difficult to grow your business. A good business credit score is one of your most important assets, so make sure you understand how its value is determined and what you can do to protect and enhance that value over time.