5 Tips to Improve Your Business’s Credit Score (and Get Better Loan Terms)
Your business credit score is a key factor in securing financing and getting better loan terms. A high credit score can unlock lower interest rates, higher loan limits, and more favorable repayment terms. But improving your business’s credit score doesn’t happen overnight.
Fortunately, there are specific steps you can take to improve your business credit and enhance your financial future. Here are 5 practical tips to help you boost your score and get better loan terms for your business.
1. Pay Your Bills on Time (Every Time)
Your payment history is one of the most important factors in your credit score. Paying your bills on time is essential for building a positive credit history. Even one missed payment can have a significant impact on your score.
Set up automatic payments or reminders to ensure that all of your business expenses are paid on time, including vendor invoices, credit cards, loans, and utility bills.
Why it matters
A consistent payment history shows lenders that you’re reliable and can manage your debt responsibly. This helps build trust and will improve your credit score over time.
2. Keep Your Credit Utilization Low
Credit utilization refers to the percentage of your available credit that you're using. Lenders want to see that you're not maxing out your credit cards or credit lines. Ideally, your business should use less than 30% of its available credit.
How to manage your credit utilization
- Pay off credit card balances in full each month to avoid carrying a balance and accumulating interest.
- Request a credit limit increase to improve your utilization ratio.
- Use multiple credit accounts to spread out your credit usage and lower the percentage on any single account.
Why it matters
High credit utilization is a sign to lenders that your business might be over-leveraged and struggling to manage debt. Keeping utilization low shows that your business is financially stable.
3. Establish and Build Business Credit
If you haven’t already, establish business credit that’s separate from your personal credit. Open business credit cards, apply for small business loans, or work with suppliers who offer net-30 or net-60 terms to begin building your business credit profile.
As your business builds its credit history, it becomes easier to qualify for larger loans with better terms. And it helps reduce the reliance on your personal credit score for future financing.
Steps to build business credit
- Register your business with the business credit bureaus, such as Dun & Bradstreet.
- Open a business credit card and use it regularly (but responsibly).
- Make sure vendors report your payments to business credit bureaus.
- Keep your business information (address, phone, etc.) consistent across all platforms.
4. Reduce Your Existing Debt
Having too much debt can hurt your credit score and make lenders nervous. Work to pay down existing debt as much as possible, especially high-interest debt, to reduce your debt-to-income ratio.
Steps to reduce debt
- Focus on paying down high-interest debt first (often credit cards).
- Consolidate debt, if possible, to get better terms or lower interest rates.
- Make extra payments when you can, or increase your monthly payment to reduce the principal faster.
Why it matters
Reducing your debt shows lenders that your business is able to manage its financial obligations and that it’s in a healthier financial position. A lower debt load can increase your creditworthiness.
5. Regularly Check Your Credit Reports
It’s important to regularly review your business credit reports for errors or discrepancies that could be negatively impacting your score.
How to check your business credit report
- Request a free credit report from major bureaus like Dun & Bradstreet, Equifax, and Experian.
- Look for any inaccuracies, such as incorrect late payments or accounts that don’t belong to you.
- Dispute any errors with the bureau to have them corrected.
Why it matters
Errors on your credit report can drag down your score unfairly. By keeping an eye on your report, you can ensure it accurately reflects your financial history and make any necessary corrections.
Final Thoughts: Building a Strong Business Credit Score
Improving your business credit score takes time, but following these tips will help you build a solid foundation for long-term financial success. As your score improves, you’ll be able to access better financing options and save money on interest rates.
Focus on building good habits now, and your business will be in a stronger position when you need financing in the future.
Important Reminder: Education Only
ChicagoBusinessLoans.com is an educational blog. This article is for general information only and is not personal financial, legal, or tax advice. Every lender has its own requirements and policies. Before you apply for or accept any loan or line of credit, review the terms directly with the lender and consider speaking with qualified professionals who understand your specific situation.