Effective Strategies to Increase Your Business Credit Score

How to increase business credit score?
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  1. Understanding Business Credit Scores
  2. How to Improve Credit Score in Canada
  3. Leveraging Trade Credits and Supplier Relationships

Along with high-quality products, prompt service, and loyal customers, every organization needs a solid credit score. This underrated figure is crucial for navigating any sort of financial matters — from supplier payments to insurance rates.

Companies that work on building their credit scores grow at a consistent and steady pace, while those with low credit are left at the mercy of banks and vendors.

Fortunately for the latter, there is an easy way to boost credit scores. Simply follow the strategies outlined in this guide, and you will see a significant improvement in your business’s financial health.

Understanding Business Credit Scores

First, we need to ask, what is a good credit score?

In Canada, a business credit rating is established by a number of agencies, such as Equifax, TransUnion, or Dun and Bradstreet.

Each bureau has its own methods, but scores typically range between 0 and 100, while some go up to 1,000. A business credit report will contain basic information about your company, your credit score, bankruptcy records, and other relevant data.

Some bureaus may further divide your business credit score up into a delinquency score, a payment index, and a failure risk score, each with its own implications.

While each bureau has a slightly different way of arriving at a credit score, they all look into a similar set of factors, including the age of your business, as well as:

  • Payment history
  • How you use credit
  • Your credit history
  • Types of credit
  • Public records

Each of these factors comes together to determine your access to financing, your interest rates, and the terms of your credit agreements, among others.

How to Improve Credit Score in Canada

Business credit reports can be accessed by financial institutions, insurance companies, and the Canadian government, among others. Let’s take a closer look at how to increase credit scores and make a good impression on all these agencies.

Timely Bill Payments

While personal credit usually has no bearing on a credit score for business, some determining factors stay the same — such as paying your bills on time. When looking to boost credit scores, it’s essential that you pay your bills by the deadline or even ahead of time.

This involves reviewing your internal systems and analyzing your cash flow. Ask yourself questions like: Is your software up to the mark? What payments are you concerned about being late making? Are you approving invoices efficiently?

In this modern age, there’s really no excuse for late payments. Along with innovative budgeting techniques, companies can also rely on automated reminders to ensure they never miss a due date.

Strategic Credit Use

Business credit lines are exceptionally beneficial for organizations looking for short-term funding, but only if they are used responsibly.

Organizations looking to get a good credit score must be strategic about their withdrawals, study interest rates carefully, and avoid using credit lines when facing losses. All credit must be budgeted and accompanied by a detailed repayment plan.

While credit lines are flexible and can be used as per your requirements, they do have upper limits. Through proper budgeting, responsible spending, and restraint, you can ensure you never reach this maximum limit.

The amount you spend compared to the upper limit is known as a credit utilization ratio and will come into play the next time you’re applying for a small business loan.

Maintaining a Healthy Credit Mix

That said, having multiple lines of credit isn’t always a bad thing. In fact, a healthy credit mix might even help build credit scores.

It may sound counter-intuitive, but businesses should consider diversifying their credit sources if they’re looking to improve their company credit score.

Provided you manage all lines of credit responsibly and take new small business loans only when you need them, having a healthy credit mix shows agencies that you can be trusted. This includes a mix of revolving credit lines and term loans.

Monitoring and Disputing Credit Report Inaccuracies

If you’re wondering why my credit score is not going up, the answer may be that you’re not evaluating your business credit report accurately.

It’s only through regular monitoring that you can identify strengths and weaknesses in your strategy and take active steps to improve credit scores.

Many agencies offer tools to keep an eye on your credit reports, while a business loan calculator can help you identify where you currently stand.

Furthermore, agencies aren’t perfect and may occasionally introduce an error into your report. If you identify a mistake, it’s crucial to dispute the information the right way.

Write to the credit agency with a clear explanation of what you think is wrong, and attach copies of relevant documents that support your argument. Also, don’t forget to include your updated contact information and make a copy of the credit report with the disputed items highlighted, as this may help at a later stage.

Leveraging Trade Credits and Supplier Relationships

As a small business owner, you’ve probably faced your fair share of cash shortages. It’s no surprise then that many businesses opt for a trade credit, a financing option offered by suppliers that lets you buy products without paying right away.

Sellers that offer trade credits give you anywhere between 30 days and six months to settle their dues and are more likely to be in good financial stead.

Depending on the supplier you work with, this has several benefits. For one, it gives you the opportunity to strengthen your credit history — provided the seller reports to a commercial credit agency.

Furthermore, some sellers don’t require you to have a prior credit history, don’t check personal credit, and don’t charge interest fees on trade accounts. All the while, it acts as another great option for any company wondering how to raise credit scores.

To see all these benefits, though, it’s crucial that you build strong relationships with suppliers — as your reputation will impact your terms more than your financial history. Pay vendors on time and work with trusted suppliers to make the most of trade credits.

Conclusion

If you came into this article worried about bad credit, don’t be disheartened — several financial agencies offer business loans for low credit as well.

However, if you want to change your credit score, ensure you pay all bills on time, diversify your credit lines, and develop strong relationships with suppliers. If you implement these strategies, your credit reports will be positive in no time.

If you’re looking to apply for a business loan in Canada, look no further than GreenBox Capital. Our team is dedicated to helping small and mid-sized businesses acquire crucial funding in as little as one business day. So, regardless of your business credit score, don’t hesitate to apply now for loans as low as $3000 to as high as $500,000.

Sources

Jordan Fein
Author: Jordan Fein
Contributor and expert in finance and loans, business and economics