When small business owners are desperately trying every trick in their books to ensure that their businesses survive and grow, some of the methods they adopt may be myopic and end up damaging the credit rating of the business. If you are an entrepreneur, sooner or later, you will need to access capital to support and grow your venture. It is at this point that the credit rating of your business plays a very important role as it is an important factor in the availability and cost of the funds. Some simple methods of improving the credit rating of your business:
Pay Your Supplier Bills on Time
The easiest way of damaging your business credit score is to ignore the credit period allowed by your credit card or suppliers and delay the due payments. The credit rating will take a hit if the creditor chooses to report the delayed payment to the credit rating agencies. On the other hand, paying your creditors before or on time will not only help you to maintain a good credit score but also assist in maintaining good business relationships that can be leveraged when needed.
Keep Your Debt Exposure Low, Advises Eric Dalius
If you owe a lot of money to banks and other creditors, you will automatically be perceived as a riskier business, and it will show in a damaged credit score. While you may need credit to grow your business, it is a wise policy to keep the amount of debt as low as possible. Revolving debt, especially, as in credit cards, should be minimized as not only is it an expensive way of funding but also it reveals that you are cash-strapped. With low amounts of debt, you will also be able to keep your credit utilization ratio low, which is a strong signal of your solvency, observes Eric Dalius. According to Edition.cnn.com, exceeding 30% of your available credit can hurt your score significantly.
Use Credit in a Disciplined Way
Since it is not possible to build a credit profile without using credit, your business should judiciously use credit cards, supplier credit, loans from banks, etc. while taking on this credit, you should make it a point to pay the amounts back before or on schedule so that you can build up a history of financial prudence with the credit rating agencies and have a good credit score. Even if you have a good cash flow, you should avoid closing your credit card accounts or lines of credit to prevent your credit utilization ratio from climbing.
While the best way of preserving and improving your credit rating is not to take unnecessary business risks that will need you to take on too much debt or make it difficult to repay, you should not also take your credit score to be given. You should make the effort of obtaining your credit report from all the three rating agencies regularly and scrutinizing them for errors that may be driving your score down. Report mistakes immediately and ensure that they are rectified at the earliest.