3 Factors That Establish Business Credit

3 Factors That Establish Business Credit

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As you probably already know, it is important to maintain a well-established business credit score. However, are you aware of how it relates to the success of your business?


Unlike your personal credit score, which measures strictly personal credit history, a business credit score determines your company’s overall creditworthiness. What this means is simple: A high business credit score will help you to secure business loans at favorable terms.


How can you increase your business credit score, you wonder? Here’s our top 3 ways:


Maintain a manageable level of debt

Initially this may sound quite obvious, but in reality, it is one of the biggest factors known to negatively affect credit scores. No matter your credit limit, it’s important to strive for low debt levels. Issues occur when a business owner borrows more working capital than they can afford.


When debt is not manageable and you can no longer financially afford monthly payments, your credit score will suffer. As a business owner, money management is crucial and should never be overlooked. Create a business budget for easy supervision and money allocation.


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Make timely payments

Similar to personal credit scores, business credit scores decrease each time a payment is missed. Even though credit companies may use a slightly different method in  order to determine a business credit score, late payments will always have a negative effect on your score.


Payment history is actually the most heavily weighted factor in determining a business credit score. It’s important to figure out your debt to equity ratio so that you are never in the position of missing a payment. According to the professionals, it is advised to keep the debt level around 20 to 25 percent of the credit limit.


Your history of making timely payments to creditors is also a key component in maintaining and increasing a business credit score. Did you know that in order to earn the highest possible score, businesses must consistently pay early?


Establish credit lines with creditors

In the business world, a solid line of credit with industry related vendors is key. These vendors play a huge part in building business credit. No matter how big or small a vendor is, it’s important to establish that business relationship.


Make sure that the creditors are reporting your payments to credit reporting agencies. (Unlike personal credit, they aren’t required to submit this information.) This will give a solid boost to your business credit score. The more vendors that report a positive credit history, the higher your business credit rating will be.


The Bottom Line

Maintaining a healthy business credit score requires management and organization. Assign someone within your company to play close attention to your business finances because when it is managed correctly, your business credit score will reap the benefits.

Topics: Business Credit

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