How to increase your business credit score in 5 steps

Your business credit score has the power to either push you toward your business goals or hold you back. While a strong credit score can expand your opportunities, a poor one can limit your options—financially and logistically. 

The good news is that your credit score isn’t permanent; just like your personal score, there are ways to help improve it. Whether you’re trying to build business credit for the first time or raise your score after a difficult few years, there are numerous steps you can take to increase your score and position your business for success. First, though, here’s a refresher on the basics of business credit. 

Business credit 101 

A business credit score is a number that indicates how creditworthy your operation is. Your score, which is based largely on your company’s history of debts and payments, shows lenders how reliable you are with borrowing money and making timely payments. 

Whereas personal credit scores are based on a scale from 300 to 800—with scores of 700 or higher considered good—business credit scores range from zero to 100. The higher your score, the less risk you pose to lenders. Business credit scores between 50 and 79 are generally considered moderate risk, while scores of 80 or higher are considered low risk. 

Why is business credit important? 

Strong business credit is critical to your business’s bottom line. Lenders, vendors, landlords, and credit card companies review your business credit score when deciding whether or not to work with you. If you have a better score, not only are you more likely to get approved for financing or secure quality trade agreements, you’re also more likely to get favorable terms. 

With business financing, favorable terms can include lower interest rates, longer repayment periods, larger loan amounts, and bigger lines of credit. With vendor agreements, a better credit score might help you get discounts on orders or longer credit terms. A good business credit score can also give you more leverage when negotiating insurance premiums or commercial lease terms with a landlord. 

A poor business credit score, on the other hand, makes it harder to qualify for financing and other opportunities, like landing an incredible office building. If you do get approved for financing, you might end up with higher interest rates or stricter payment terms. 

What is your business credit score based on? 

Your business credit score is based on a number of different factors, including your business’s: 

• Outstanding balances 
• Payment history
• Credit utilization ratio 
• Trade experiences 
• Years in business 
• Business size

Does personal credit matter as a business owner? 

Yes, your personal credit score as a business owner does matter. While some lenders weigh personal and business credit scores equally when making lending decisions, others look solely at your business’s creditworthiness. Keep in mind, however, that if you’re a sole proprietor or still in the process of establishing business credit, your personal credit score carries more weight.  

How to improve your business credit score

Raising your business credit score takes time, patience, and consistency. While change won’t happen overnight, adopting some of the habits outlined below could help get you closer to where you want to be.

Step 1: Update your credit information with commercial credit bureaus

Dun & Bradstreet, Equifax, and Experian are the three commercial credit bureaus responsible for collecting information and generating business credit scores. Not every lender or supplier reports information to all three bureaus, so it’s crucial to make sure your file is consistent and up to date across each different platform. Here are three actions to take: 

1. Check your files for accuracy: Errors in your file can lower your credit score. To ensure accuracy, visit each bureau’s website and review your business’s file. If you notice any errors in your payment history or outstanding balances, immediately report them to the bureau. 
2. Upload financial documents: Improvements in your debt load or cash flow can help raise your business credit score. If you notice your file has old records, upload your most recent balance sheet, profit and loss statement, and cash flow statement so your finances are current.  
3. Add trade references: Trade references are a good way to improve your credit score. If you have positive experiences with your vendors and suppliers—and always pay them on time—ask them to give you a trade reference on one or all of the credit bureaus’ websites. If they don’t want to or don’t have time, you can still list your vendor as a trade reference on your credit file. The credit bureau will follow up with them for more information if necessary. 

Step 2: Streamline your bill payment process

Paying your bills on time—or even ahead of time—is one of the most reliable ways to improve your credit score. If you have a history of late or missed payments, it’s time to streamline your payment process. 

Start by reviewing your cash flow and internal systems for receiving invoices, handling accounts payable, and paying bills. Do you use manual tracking systems or software? Who handles payments? What problems do you regularly run into? Answering these questions can help you figure out what to change. 

You may need to upgrade your accounting software, for example, or set up automatic payments for utilities bills. Or maybe you need to develop a better process for approving invoices, so they move through the queue faster. 

Step 3: Practice smart spending with a new business credit card or line of credit

Responsibly using credit can increase your credit score over time. If you’re on top of your current business credit, consider applying for a new business credit card or business line of credit. The key is to make sure that the credit card companies or lenders you look at report to one of the main commercial credit bureaus. You can either ask them directly or peruse the FAQs on their websites (and here’s a list of credit card issuers that report to credit bureaus). 

From there, practice smart spending and paying. Here are a few tips that can help: 

• Consider using your new credit card or line of credit for specific purchases—like inventory restocking or utilities bills—to better control and track your spending. 
• Schedule calendar alerts for regular payments. 
• Maintain a low credit utilization ratio (more on this below). 

Step 4: Keep a low credit utilization ratio

A credit utilization ratio represents the amount of credit you’ve used relative to the amount you have available. Keeping your credit utilization ratio low can help raise your credit score because it means you’re less likely to max out your credit.

Experts generally consider 30% a good credit utilization ratio, 10% top-notch, and 0% too low to demonstrate smart fiscal management. As an example, imagine your business’s combined credit limit is $30,000 across all cards; in order to maintain that 30% credit utilization ratio, you want to make sure your used credit balance across all cards doesn’t exceed $9,000 before you bring it back to zero.   

Here are a few ways to keep your credit utilization ratio low:

• Zero out your balance: Don’t just make the minimum payment each time. Instead, try to bring your balance to zero as often as possible. 
• Up your credit limit: Ask your business credit card company for a higher credit limit. If you have more available credit but keep your spending the same, you’ll have a lower credit utilization ratio. 
• Come up with a payment strategy: Experiment with different ways to keep your spending in check. You could make a payment every time you check your balance, for example, or designate one day a week as payment day. 

Step 5: Consider consolidating your debt

Consolidating your debt—getting a new loan to pay off multiple other loans—has the potential to help increase your credit score, but it’s not foolproof. In fact, consolidating your debt can actually raise your credit score initially. That’s why it’s important to discuss debt management options with your business accountant before making any moves. 

In general, here are a few circumstances where consolidating your debt could help improve your credit score:

• If your credit utilization ratio drops: If you get a new loan to pay off your credit card debt or if you move your credit card debt to a balance transfer card with a higher limit, your ratio will go down. 
• If you make all your payments on time: Over time, a positive payment history can help raise your score. 
• If you feel more in charge of your debt load: If consolidating your business debt gives you peace of mind and a streamlined way to stay on top of your various payments, it may help your score in the long run. 

Improving your business credit score is a good investment in your business’s overall financial well-being. If you think a new line of credit could help raise your score, check out Funding Circle’s business lines of credit. We offer flexible financing with lines of credit from $5k to $250k—and no prepayment penalties. Apply now.

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