You may have heard of personal credit scores, but there is also business credit. The latter is essential to help your business grow, and it works in many ways to get you better deals in the future.
As always, the more responsible and successful you are, the better your score will be. Here’s how it all works.
What Is a Business Credit Score?
Business owners usually have a single account from which they withdraw funds to pay for expenses. There is likely a second account that is responsible for all the deposits.
However, for all business expenses, there is likely a business credit card upon which the credit score is built. This is the basis for the business credit score.
As with personal credit, the more regularly you pay your bills, the better your score. The better your score is, the better deals you can get. Hence, like personal credit, a business credit score helps your business grow financially.
As a business owner, you will get better access to the tools you need with a good credit score. For example, the lower the credit risk is, the more likely you are to gain access to better financial software.
The same goes for better cybersecurity management and ERP software options. Lower interest rates and insurance premiums and higher cash-back rewards will always end up benefitting the business. With the extra money, you can invest in your business even further.
You can secure better loans for yourself and get better insurance rates on business expenses.
All of this tracks back to the value of paying bills and getting payments done on time. It pays to pay on time. The answer to how to build credit score fast will always remain this simple. It’s just how you approach it that’s going to change.
How You Can Manage Your Business Credit Score
Bad credit is a very slippery slope. There is time to fix it, always. However, the further down the rabbit hole you go, the harder it is to crawl out. In business, that spiral is even steeper than in your personal life.
Hence, here are a few red flags that you should always watch out for. Avoid these and you’ll be able to keep your credit score at a nice number or even raise it if you’re lucky.
Unpaid Balances
Unpaid balances are the easiest ways to destroy your credit rating. During periods of struggle, businesses have the option of paying late. However, paying on time for, at least your most crucial utilities is the best way to preserve a good credit score.
Otherwise, the credit score will gradually deteriorate before dropping sharply.
Payment Profiles
Make sure that your payment profile to vendors and utility companies is consistent. Even if you have a successful company, not keeping up with your vendors is considered financially irresponsible. It can only improve your credit score if you re-pay regularly.
Change Over Time
Changing your profile to improve with payments over time has a great effect on your credit score. If you strive to become more fiscally responsible over time, your profile will show it which will improve your score.
Tradelines
A tradeline is the equivalent of a credit line for business credit. It’s the record of activity that has occurred on a business account. All purchases, deposits, and withdrawals are recorded in black and white.
The credit that is granted to you and the score that you have is directly impacted by the tradeline.
If you have too many tradelines that are opened up at one time, the business may be badly affected. These tradelines can relate to accounts, accounts receivable, business loans, etc.
Credit Use
Don’t max out your credit lines. If it’s an emergency, make sure that you don’t go overboard. Think of the purchase you need to make or the payments you need to make.
Single out the most crucial ones first and don’t max out the limit. If you do, that may have serious consequences for your business credit score.
Public Records
While only indirectly related to finance, disrepute can also harm your business credit. If the business is involved in an unlawful activity or if a product fails, the business credit score will go down.
How Bad Business Credit Impacts Your Business
Loan Rates Rise
You will stop getting approvals on large loans if your credit goes bad. Your interest rates will also increase since the banks will stop trusting you based on your financial irresponsibility.
Loan Restrictions Increase
Poor business credit scores will result in a lot of vendors not approving loans for you at all. Those that do will offer you several deals that favor the other party heavily. Taking on this kind of damage can be death to a small business.
Insurance Rates Rise
Higher insurance rates for vehicles, services, etc are obvious as a result of bad credit.
Vendor and Utility Costs Rise
This may seem the most unfair, but it does happen. You may have to pay higher utility costs due to bad credit.
Vendors may no longer feel comfortable offering you low rates since they’ll be unsure that you’ll pay on time. The same goes for utility companies.
Managing your business credit score is paramount for your business to grow. Manage your finances well so that you can grow it from strength to strength.
Author bio
Emily Scott is a senior content manager at KikOff.com. She is responsible for overseeing the content writing services at the site. She enjoys bowling in her free time and loves the works of William Wordsworth. KikOff.com is a Fintech company that helps users build a great credit score for free.
from Feedster https://www.feedster.com/business/why-is-building-good-credit-essential-for-your-business/
No comments:
Post a Comment