In 2018, the average American FICO score was 704. And while a good personal credit score is important, if you’re a business owner, there’s another type of credit score you need to know about.

Like a personal credit score, the higher the number, the better able you’re able to secure a loan if you need to. But if your business score indicates a bad credit number, it can hurt the health of your business.

Thankfully, there are ways to improve your poor credit.

If you’re looking to improve your business credit score, we’re here to help. Keep reading to learn our best poor credit tips to help you get that business loan.

How Bad Credit Hurts Your Business

The number one reason why most businesses fail is due to cash flow. To ensure that your business sticks around for the long haul, you need to make sure you always have access to cash when you need it.

And there are other reasons to ensure you have good business credit:

Getting Financing

If you have poor credit, you may not be able to obtain financing when you need it. A good credit score increases your chances of getting a loan or line of credit with favorable terms.

Lower Insurance Rates

The larger a business grows, the higher insurance rates climb. You may be able to keep insurance rates lower if you keep your business credit score high.

Higher Borrowing Power

The higher your score, the more money creditors are willing to lend to you.

Separation of Business and Personal Finances

You can use many business expenses as write-offs for tax purposes. You can’t use personal expenses as business write-offs.

It’s important to keep the two separated. Creating a credit profile for your business helps further separate business from personal expenses.

How a Business Credit Score Is Calculated

Unlike a personal credit score, which ranges between 300 and 850, business credit scores range from zero to 100. The closer to 100 you are, the better your credit score.

Each of the three main business credit bureaus, Equifax, Experian, and Dun & Bradstreet use their own methods to determine your business’s creditworthiness. They may use sources such as:

  • Banks
  • Business credit card issuers
  • Data-gathering trade associations
  • Vendors

These credit agencies will also check to see if you’ve been late on any payments recently and what your past credit history is like.

Poor Credit Tips

While there are small business bad credit loans available, they often come with high-interest rates. Also, you should learn how to fix bad credit because it’s easier to get better loans and lines of credit.

Know Your Credit Score

At least once a year check both your FICO personal credit score and your business credit score. While you’re entitled to one free personal credit report each year from the three major credit bureaus, you’ll have to pay for your business credit reports.

Knowledge Is Power

However, knowing your credit scores lets you know exactly what types of loans and lines of credit you can obtain. That will make it easier for you to find the right one that fits your needs.

Also, it’s imperative to check for any errors. It’s not uncommon to find mistakes. If you do, gather any evidence you have and contact the bureau directly.

Establish Credit Accounts

Of course, the age-old Catch-22 problem is that you can’t get credit until you have a credit history. Start building up your credit by working with suppliers.

As you work with suppliers like utility companies, you’ll begin to establish a credit account with them. As you pay them each month on time and in full, you’ll increase the number of positive payments in your credit history file.

This helps improve your business credit score.

Decrease Your Credit

The more credit you have, the less likely a creditor is willing to lend you money. Most experts agree you should try to keep the amount of credit used in relation to the amount of credit available. Aim for anywhere between 30% to 15% or lower.

Here are a few ways you can do that:

Increase Your Credit Limit

Contact your credit card provider and ask them to increase your credit limit.

Decrease Credit Card Spending

Lower the amount of money you put spend on credit each month.

Pay Off Balances

If you can, pay off the balance on your credit card entirely. If not, pay as much as you can each month.

You can also pay your bills more than once each month.

Open a New Line of Credit

Having more credit available that you’re not using makes you look good to those credit agencies.

Add Positive Payment Experiences to Your File

Not every vendor or supplier shares their customer data with business credit-reporting agencies. However, if you need more positive financial experiences on your credit file, you can manually add these vendors and suppliers yourself.

The more positive payment experiences you have in your credit file, the higher your score becomes.

Pay off and Delete Debts Sent to Collections

Always pay off any debts that are sent to collections. Once you’ve fully paid off your debt, ask the agency to delete the negative account from your credit reports.

Do not expect the collections agency or debtor to delete the negative information on their own. You’ll have to specifically request it.

If you don’t, even if you’ve paid off the debt in full, you may still show a history of negative accounts.

Be Patient

While you may have poor credit, if you use these poor credit tips, you’ll improve your business credit rating. However, be patient.

It takes time to build up a positive credit rating. Don’t expect that by next week your score will have dramatically increased.

Take Immediate Action

Also, most credit disputes take between 30 days and several months before they’re resolved and show up on your history positively. That’s why it’s so important to stay on top of any mistakes or issues.

However, once they’re resolved, you may see an increase of 20-30 points in your credit history score.

Apply for a Loan

Whether you have bad credit or great credit, if you need money for your business, you need it immediately. And we can help. Click here to apply for a new business loan.