The COVID-19 outbreak in 2020 has left many people jobless and struggling with credit issues, with the same impact being felt by businesses around the world. Now that the world is gradually returning to normal; you might also be thinking about how to improve your credit score in 2021 if it took a hit. This is something you shouldn't ignore, as having a good credit score is a great indicator of the financial health of your business.
Contents1. Understand how the company's credit score is calculated2. Maintain a low debt utilization rate 3. Pay your bills on time4. Build Credit 5. Don't Close Old Business Credit Cards Take AwayBanks and other financial institutions use your credit score information to assess your creditworthiness and decide whether or not to offer credit to your business. However, maintaining and improving your credit score is a tall order for many business owners.
So, if you're curious about how to improve your credit score in 2021, look no further.
One of the first things you need to do before learning how to improve your business credit rating in 2021 is to understand how this number is obtained and the different factors that affect it. Factors that affect this score include;
Understanding these factors is crucial because commercial credit bureaus such as Equifax, Experian, and Dun &Bradstreet use business credit reporting. It's also essential to understand this because credit bureaus use different formulas to calculate your credit score.
Another thing the credit bureaus take into account when calculating your credit score is your debt utilization ratio, which refers to the percentage of credit used compared to available credit. The ideal debt utilization rate should be 15%, even when you have plenty of lines of credit. There are various techniques by which you can achieve this, including:
By maintaining your debt utilization rate at 15%, you will not deplete your credit. That said, a higher credit utilization rate is also accepted, but it should not exceed 30%; otherwise, your credit score will begin to deteriorate.
Running a business means you likely have a busy schedule filled with many day-to-day responsibilities. For this reason, it is easy to forget some of your bills on time. You should never make this mistake as it is a good business habit and improves your business credit ratings. Therefore, you must settle all your payments at all times to utility companies, vendors, landlords or lenders, on time.
There are a few helpful tips you should follow to ensure you always make timely payments, including:
When you start a small business, you may not need credit because you can finance anything. But as your business grows, you'll likely need help to propel your business growth. If you don't have established business credit, you may not qualify for a business loan.
With that in mind, you need to open multiple credit accounts and slowly start building up your credit history. You can do this even when your business does not need a loan because; Business credit scores are tied to your credit history most of the time.
It's tempting to remove your old credit accounts from the credit report after you settle your business loan. However, it is not recommended to do so. This means that all the years you spent managing your credit card balance will be lost. This causes your credit score to suffer because there will not be enough credit history to be considered when calculating your credit score. In addition, insufficient credit history is considered a sign of stability, which means that it is easier to gain the trust of sellers and suppliers.
If you have several business credit cards, you should close some of them and it is better to stop only the last ones. This way, your credit score won't suffer too much due to less credit history.
A good credit score is something many entrepreneurs dream of achieving, as it is a great indication of the financial health of your business. This is because your business credit rating affects your ability to get a loan and the interest rates. If you're struggling to improve your business credit rating, this guide has highlighted helpful tips to improve your credit rating in 2021.
