April 03, 2019 | Posted in:

Ways to Build a Strong Business Credit Rating

When you apply for a personal loan or home mortgage, lenders generally check your credit score. They want to know whether you’re a good risk and whether you’ll make payments on time. Once that question has been answered in the affirmative, you may be able to negotiate a lower interest rate, more advantageous payment terms or a larger line of credit.

Small companies face similar scrutiny. Although credit bureaus employ different algorithms and consider additional factors when formulating business scores, a strong credit rating can provide your company with substantial benefits. For one thing, it can help you avoid prepayment for materials and services — a good thing for cash flow. It may also place you in a better negotiating position with suppliers and qualify your business for better interest rates and credit terms.

To establish a solid business credit score, consider the following tips:

  • Pay your bills on time. When Experian, Equifax and TransUnion calculate a credit rating, payment history is a defining factor. Small companies are often perceived as inherently risky, so make sure every invoice is paid on time. You’ll show lenders that your company is reliable.
  • Watch your credit utilization. Don’t max out business credit cards or existing lines of credit. To build a strong rating, try to use 30 percent or less of available accounts. Otherwise, lenders may question your ability to cover outstanding debts.
  • Don’t apply for credit too often. If you’re inquiring at a financial institution every other month, lenders may wonder whether your business has become overextended.
  • Keep business and personal accounts separate. Open a separate bank account, use a separate credit card, and set up a separate business credit file with all three reporting agencies. Don’t allow your company to be negatively influenced by financial missteps in your personal life, or vice versa.

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