A business credit profile is the face that a company presents to lenders, suppliers, insurance companies, lessors and other businesses when they decide whether to extend credit or do business with that company. It’s used for setting terms on credit, loans, lease payments and insurance premiums to name a few.
As a business owner, it’s essential to take proactive steps to improve your business’s credit profile. Once you are aware of what information is important, you can take the steps necessary to make an impact.
Here are five ways you can improve the strength of your company’s credit profile:
Pay better than terms. The payment experiences other suppliers and companies have with your company have the greatest impact to your business credit profile. However, paying better than terms indicates that a company pays its suppliers a certain number of days in advance. For example, for a perfect Paydex® Score of 100, a company needs to pay early.
Add trade experiences that are not being reported. Are any suppliers and lenders that your business has been paying on a consistent basis not reporting on your business credit profile? If that is the case, your business credit profile is not a true representation of all your company’s payment experiences. Check and monitor your profile regularly to ensure that all your supplier and vendor relationships are reporting.
Update your business credit profile. The accuracy of the information being reported about your company is crucial. Even minor mistakes in your profile can make it more challenging for your business to qualify for a line of credit or loan. The good news is the major business credit reporting agencies have processes in place to address disputes and correct errors on their websites.
Keep your debt financing ratio at a lower level. The extent to which your business uses debt to finance its operations is an important factor that impacts your company’s credit ability. Keeping debt at a lower level shows suppliers and lenders that your company is not over extended and therefore less likely to default.
Monitor the key financial indicators in your report. You can identify areas where your company can improve its performance and profile by seeing how it compares to other companies in its industry. Using financial indicators in your report is a powerful tool for evaluating your company’s performance.
Keep your credit accounts active. The most powerful way to enhance your business credit profile is to use your credit accounts regularly and make timely payments. Building a strong business credit report is about demonstrating that your company can use its credit effectively when it needs it and that it can make timely payments when it borrows.
The fact is no one knows your business better than you do. While you may have a business that is growing and profitable, but when it comes to getting business credit, what matters most is what is reporting on your business’s credit reports.
There’s no question, a strong business credit profile is something every small business owner should strive to attain. Although it takes time to establish payment history and overall creditworthiness, let these five ways to enhance your profile serve as a guideline to help you build a solid profile.