Maintaining a high credit score is as important for a business as it is for an individual. And as many small business owners know all too well, if a company doesn’t have good credit, it can be extremely difficult to obtain loans or negotiate favorable rates and terms on financing agreements. Plus, entrepreneurs who separate their personal finances from those of their business reduce the risk that their own assets will be affected should the company fall on hard times.
Repairing a score that has dipped into subprime ranges can be done with a few simple steps. Check out these five tips to get your business back on the path to good financial standing.
Check Your Credit Regularly
The first step to maintaining a high credit score is to know what that score is in the first place. Several primary scoring companies report business credit ratings, including Experian, Dun & Bradstreet, and Equifax. Choose one and examine the report closely for mistakes, including bills that went into collections due to a billing error or credit limits showing up lower than they actually are. If something inaccurate is adversely affecting the score, take the necessary steps to dispute it and have it removed from the record.
Build Credit
Don’t avoid using credit all together out of fear of earning a low score. Opening a credit card account or two or taking out a small business loan in the company’s name—and paying the bill in full every time—is an important way to prove a business is a reliable, financially responsible entity.
Keep Balances Low
Credit scores take into account how much debt a business holds at any given moment. Paying off credit card bills each month and limiting the number of loans the company has are key markers toward a good rating.
Always Pay on Time
Even if your business cannot pay its credit card balance in full, at least make the minimum payment due on time, every month. The same goes for loans, utilities, and other invoices. On-time payment is one of the most important ways to keep your business’s credit score rock solid. Talk with your accounting professional to set up good bookkeeping systems to ensure due date slips by.
Be Consistent
Some credit reporting agencies take into account an entity’s risk factor, so establishing regular, reliable financial behavior is the smart way to go. Damaging practices include suddenly skipping a payment, charging in large amounts, taking out cash advances, or paying only a fraction of a large bill when the usually payment is in full. Regardless of how a business owner manages their personal finances, establishing consistent, steady practices for their business will result in a strong financing standing.