Having a good credit score is crucial to the bottom line of every business. Not only does it allow the business to borrow money at a lower interest rate, it also allows it to secure a business credit card, benefit from lower insurance premiums and build relationships to get flexible terms from suppliers.
Good credit is the backbone of the leasing industry, so here are some tips on how to build and maintain an ideal credit score.
Pay bills on time, and, if possible, pay them early
Dun & Bradstreet is the main credit agency used worldwide to rate businesses. They issue businesses a Paydex score, which is an industry standard for credit worthiness. One of the factors that can affect any credit score is paying bills, but paying bills early can improve a Paydex score.
Dun & Bradstreet don’t just look at if a business paid its bill; they also keep track of how long it took to pay an invoice. Credit agencies will reward businesses for paying early.
Also, Dun & Bradstreet sends out a questionnaire every year to vendors where they ask vendors to rate businesses. If a business pays vendors early they will be more likely to give a business a higher rating. A higher rating means a higher credit score.
Monitor Your Credit
A business wants to monitor its business credit history. A business should check its credit report at least once a month to address any errors or discrepancies. Sometimes accounts are falsely reported as past due. Careful monitoring can help a business catch these errors before they affect the credit score.
Keep Credit Active
Keeping credit lines active can help maintain a higher score. If there’s no continuous business credit activity, a business’ score may actually decrease. A business won’t get penalized for using its credit if it’s paying it down in a timely fashion. In fact, using credit and paying it off is the best way to increase a business’ score.
Prevent Debt from Going to a Collection Agency
This is why monitoring a business’ credit report is so crucial. If an invoice goes to a collection agency, it’s bad for a both the business and the vendor. The business’s credit score will take a major hit, and the vendor is unlikely to receive the total amount of money owed. Collection agencies charge vendors a fee, or they purchase debt for less than it’s worth. So, not only does a business ruin its credit when it doesn’t pay a bill, it actually costs the vendor money too.
Here are some more general tips to boosting your credit score
- The best place to start building credit is through suppliers. Most supplies require businesses to pay their bills within 30 or 60 days. Paying this bill in full on a regular schedule sends a signal to credit agencies that a business is credit worthy.
- Don’t apply for a lot of credit all at the same time. This sends the wrong signal to credit agencies.
- Limit the balance a business carries. A good rule of thumb is that a business’ balance should never exceed 10 percent of its limit. For example, if the business’ limit is $20,000, the business should always pay its balance down to at least $2,000.
- Be proactive. Taking action will ultimately help a business secure financing when it needs it.
Building and maintaining a good credit score is crucial to running a successful business. Not only can it save you money, but it also fosters productive working relationships with vendors and suppliers. It’s important to keep track of your credit history, and to make sure errors are corrected. Your credit is a kind of financial report card. It’s important to get straight A’s.