Industry Insights · 9min read

How to Improve Your Business’s Credit Score

7 easy steps to a better score.

If your business received a bad credit score, any number of reasons could be the root of the cause. Whether you had unpaid invoices or debt, too many trade lines or recently closed a credit account without realising the repercussions, the good news is, there are things you can do to raise it again.

Below we have compiled a list of actionable steps you can take to improve your business’s credit score, or even better, avoid getting a bad score in the first place. While every credit rating agency (CRA) uses slightly different criteria to measure your score, these general steps reflect the recommendations by some of the top independent CRAs in Europe.

Why improve your business credit score in the first place? 

Bad (or low) credit scores are problematic because they can lead to loan rejections, high interest rates, expensive insurance rates and even difficulties securing new business partners. Any or all of these can be detrimental to your business, especially if you don’t have the working capital to pay those higher fees or struggle to find suppliers who will enter contractual agreements with you.

How to improve your business credit score in 7 easy steps!

Comprehensive checklists, frameworks and dedicated resources are your keys to success in this department. Before you start out on improving your score, it’s also critical that you make sure you monitor and understand your score. You can request a credit report anytime to understand what your current score is and work from there. 

1. Check your business’s credit card report regularly 

It pays off to be proactive. By keeping an eye on your spending, you can easily settle any unpaid bills or rectify any errors before they become a problem. A good rule of thumb for credit cards is never to spend more than 20-30% of the maximum limit on any given card. 

2. Maintain good relationships with your suppliers 

Yes, proven reliability and trustworthiness can have a significant effect on boosting your credit scores in the long run. If you foster good working relationships with your suppliers, it is highly advisable to ask them to provide CRAs with positive feedback about you by sharing your payment record data. As such, your suppliers have the power to endorse you as a reliable business partner.

3. Pay your invoices on time

This may seem like a no-brainer, but you would be surprised at how many businesses run into troubles in this area somewhere down the line. Whether you experience cash flow issues for a few weeks or a bill simply slips through the cracks in your finance team, unpaid overdue invoices are big red flags. Yet another reason to take the necessary steps to increase your working capital whenever possible.

4. File your annual taxes and accounts on time

This may come as a bit of a surprise but CRAs will reward you with better scores if you file your full accounts in a timely manner. It is also advised to publicise this data, so CRAs are able to find it easily and thus reward you positively.

5. Maintain healthy finances

Ultimately, ensuring the health of your finances means working to secure high levels of working capital and thus a positive cash flow.

If you’re starting a new business, these factors may also be relevant for your personal finances. CRAs may look at your personal credit and account history until your business can demonstrate a proven track record.

6. Monitor your business partners’ credit scores

Creditworthiness can have ripple effects through entire sectors and supply chains. Thus, monitoring your partners’ credit scores is especially critical with your largest suppliers and customers, as any financial struggles on their end may affect your business down the line. If you come to discover that one of your business partners is experiencing financial difficulties, it’s worth looking into sourcing elsewhere or investing in finding new customers to reduce your reliance on their liquidity. 

7. Leave time between loans or credit applications

Particularly in a new strategic or growth phase, it can be tempting to try and ‘feel out’ the industry and test your eligibility for loans or credit. Don’t. You should only submit credit applications when you really need them because the applications themselves will go into your credit record. Submitting a large number in a short time span may lead to the suspicion that you have run into financial struggles or difficulties securing funding. The best workaround here is to simply ask for a quote but not to submit the actual application until you are sure you need to take out that loan or line of credit.

Looking to understand why you scored poorly in the first place? Get to the root of bad credit scores here.

Imagery; (1) @lxrcbsv (2) Parish Freedman via unsplash.com