To build business credit, you’ll need to take steps to improve the indicators credit bureaus look at when issuing a score. Some of these take time, and some business owners might not reap the benefits of improvement immediately.
Make on-time payments : Payment history is a key factor in determining your business credit score, so it’s important to pay your bills on time. Set up automatic payments or reminders to help ensure that you don’t miss any due dates.
Use credit responsibly: Don’t max out your credit cards or take on more debt than you can handle. Instead, use credit in a responsible manner, such as by paying off balances in full each month and keeping your credit utilization ratio low.
Monitor credit reports and address errors: Regularly review your business credit reports to ensure that the information is accurate and up-to-date. If you find any errors, take steps to have them corrected as soon as possible.
Maintain a healthy credit utilization ratio: As mentioned, a high credit utilization ratio can be a red flag for lenders. To keep your ratio low, try to keep your balances low relative to your credit limits for your business credit cards and lines of credit, or consider increasing your credit limits if possible.
Note: What is a credit utilization ratio? A credit utilization ratio is a measure of how much of your available credit you are using. It is calculated by dividing your total outstanding credit balances by your total credit limits. For example, if you have $10,000 in credit card balances and a total credit limit of $50,000, your credit utilization ratio would be 20% ($10,000 / $50,000).
Lenders and financial institutions generally want to see credit accounts sitting at 30% or less of their total limits to be healthy. This means that you are using a relatively small portion of your available credit, which may be seen as a sign of financial responsibility. Higher credit utilization ratios may be viewed as a red flag, as they may indicate that you are overleveraged or struggling to manage your debts.
Seek credit from reputable sources: Applying for credit from multiple lenders in a short period of time can hurt your credit score. To avoid this, be selective about where you apply for credit and only seek it from reputable sources.
By following these steps, you can help improve your business credit score over time and make it easier for your business to access the credit and financing it needs to grow and succeed.