If you are just starting a new business or want to scale an existing one, chances are high that you will seek credit facilities to help you achieve your goal. Business credit plays such an essential role in the success of most businesses, and there’s no shame in trying to look for ways to access them when in need. But how much do you know about credit to be able to manage it effectively?
Here, we share six most important things you need to know to ensure you’re getting the most out of your business credit.
Credit isn’t cash
One mistake that most business owners make when dealing with credit or credit cards is treating it as ‘free money’ or any other cash coming out of their wallets. It is this kind of approach to credit that sees so many of them get into trouble with borrowed money and loaned supplies. To avoid finding yourself in this pitfall, continually look for ways to educate yourself on the best ways to use credit. Crediful.com offers a great resource on money management, including how to build an excellent business credit profile.
A good credit score is priceless
They say you never appreciate what you have until it’s gone. Nothing describes this phrase better than a good business credit score. It might not look like anything significant, until that day when you need credit desperately to sort out some bills in your business. Always strive to grow and maintain a good credit history to avoid missing out on credit facilities in times of need.
Multiple factors determine your credit score
While your business credit rating can vary depending on where you’re getting your reports from, all credit bureaus and related services take into consideration several common factors when calculating the score. For starters, they look at your payment history to determine if you pay your bills and loans on time. They also consider the total amount of money other lenders owe you at the time of calculating the score. Others will also consider how long you’ve been using credit as well as how many credit accounts are under your name. Learning to balance all these factors will see you grow your business credit score and ultimately improve your creditworthiness.
Your business credit score is an open book
The one thing you need to know about credit listings is that creditors and lenders report every credit or loans your business applies to credit bureaus. What’s more, bureaus communicate with each other and also make some of this information available to others on demand. Your business credit information is compiled in a credit report, which forms the basis of your credit score calculations.
Under the law, you’re entitled to one free copy of your credit report from each credit bureau every year. Take advantage of this provision to find out how healthy or unhealthy your score is. At the same time, look for errors or incorrect information that might have been included in your report and dispute them to avoid harming your credit score.
A bad report can cost you more than just credit
If you thought inability to access credit is the only negative thing that a bad business credit causes, then you’re probably in for a rude shock. Bad credit can harm your chances of winning a tender or landing a job for your business. As if that’s not enough, some landlords can reject your request to rent their property for business if they find out about your bad report. Finally and probably the costliest of them all, lenders and other potential financiers may impose higher interest rates on your loans as they consider yours to be a high-risk business.
You can improve your business credit score
If you missed a payment or severed relationships with creditors in the past, you don’t have to worry or beat yourself too much. This is because you can still redeem yourself and the image of your business to lenders. While the process of rebuilding your credit won’t happen overnight, making small but consistent steps in the right direction could see you recover fully.
To begin with, start paying your current bills and loans on or before time. Besides, try to mend your relationships with creditors and encourage them to report good things about you to credit bureaus. You can also apply for new credit cards and make timely payments for every credit you take from them.
How would you rate your current business credit score? Are you proud or unhappy with it, and what measures are you taking to improve it? We’d love to hear your feedback.