How To Improve Your Business Credit Score In 13 Steps

At SmartBiz Loans®, we help small businesses apply for financing through our network of banks including SBA loans, Bank Term loans, and more financing options. When we interview small business owners who have been funded, we ask if they have tips for others seeking a business loan. Many say to pay very close attention to your business credit score, keeping them high.

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As a consumer, your personal credit score is important when shopping for a home mortgage, buying a car, or applying for a credit card. These personal credit scores don’t tell the whole story of your business. The other score you need to be on top of is your business credit score, also known as the FICO SBSS score.

Why is the FICO® SBSS Business Credit Score Important?

When applying for an SBA loan through SmartBiz bank partners, your FICO SBSS score will be considered. FICO stands for the Fair Isaac Corporation, the largest and best known of several companies that calculate credit scores. SBSS stands for the Small Business Scoring Service.

This score is one factor that helps lenders determine how likely your business is to make timely loan payments and ultimately pay back the loan in full.

How is the FICO SBSS Score Calculated?

In short, your FICO SBSS score is calculated by reviewing personal and business credit history. Other business financial information also comes into play like the age of your business, number of employees along with financial data, like revenue and assets.

The SBSS score ranges from 0-300 with the higher your score, the better.

To help you test your business credit score smarts, take our quiz Test Your Business Credit Score IQ. Your answers will help you learn more about your business credit score.

Why Would You Want to Improve Your Business Credit Score?

According to the Small Business Administration (SBA), insufficient or delayed financing is the second most common reason for business failure. Because anyone can view your business credit score—it’s not confidential—it’s important to establish business credit from the start to help you obtain better interest rates, loan terms, and negotiation leverage on payment periods with suppliers.

How Can You Establish Your Business Credit?

A big part of improving your credit score is establishing business credit in the first place. Business owners of all stripes can establish their business credit via the following steps:

1. Formally establish your business entity

Before you launch your business, you’ll need to be sure that your company is registered and listed in all official directories. To do so, you must obtain several business licenses and permits. Learn more via the SmartBiz Loans blog Where To Apply For Business Licenses and Permits and How To Do It.

2. Create business banking accounts

A key tenet of all sound business finance and credit advice is to never mix and mingle your personal and business money. That’s why opening business banking accounts is so important for establishing your business credit. Depositing your business earnings solely in your business accounts and using this money to cover your expenses makes it much easier to not miss credit payments. As a result, your business credit score will increase.

3. Obtain business identification numbers

Just as your personal credit score is linked to your social security number, so too is your business credit score tied to a government identifier. This identifier is known as your Employer Identification Number (EIN), and your business must obtain this federal ID before starting operations. Sole proprietors and freelancers may also want to obtain EINs so that any failure to repay business credit doesn’t affect their personal credit scores.

Another business identification number potentially worth obtaining is a Data Universal Number System (DUNS) number. The commercial credit bureau Dun & Bradstreet oversees the DUNS system and uses DUNS numbers to predict your company’s finances. As such, businesses with DUNS numbers may find it easier to borrow money.

4. Seek funding from lenders who report your payments to the credit agencies

To prove that you’re a trustworthy borrower, you need the commercial credit bureaus to obtain proof that you pay on time. You can provide this evidence while obtaining business financing by borrowing money solely from lenders who report your payments to the credit bureaus. This way, you simultaneously grow your business and open it to additional future growth opportunities.

5. Regularly check that your business information is accurate

Since every commercial credit bureau works a bit differently, information that you’ve shared with one bureau may not always appear on your profile with another. You can ensure informational accuracy by regularly checking your information with all bureaus and updating it as needed. Don’t be shy when adding information – the more context and data you can provide, the better that lenders will understand your business and its needs.

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13 Ways to Improve Your Business Credit Score

If your business credit score needs work, review these 8 strategies to help strengthen yours.

Check your business credit report regularly

There’s no shortage of sites online to get your personal credit score but you might not know where to go for your business credit score. Our article has 3 sites where you can get your score today: Where to Check Your Business Credit. If you find any errors, dispute them immediately. Incorrect information can impact running your business.

There remains some debate among financial experts on how often you should check your business credit report. Some experts say that checking once a year is fine, whereas others suggest quarterly or monthly checks. No matter how often you choose to check, your business credit score won’t be affected – contrary to popular belief, credit scores don’t go down every time you check them.

Report incorrect information

There’s always a chance that, when you pull up your business credit report, you’ll find incorrect information that damages your credit score. You can report this information to the three commercial credit bureaus, each of which has its own reporting process. Through this process, you can correct your credit history, payment history, and other factors that influence your interest rates for your small business loans, business credit cards, and business insurance.

Pay your bills on time

This step is a no brainer. Lenders or vendors don’t want to work with a business that drags their feet when paying bills. Use these strategies to avoid paying late and incurring penalties.

  • Make a list of every bill
  • Find out when your payments are due
  • Add your payments to a calendar
  • Decide how much you want to pay
  • Set up automated payments whenever possible
  • Devise a system for manual payments
  • Sign up for reminders

If you’re unable to make a timely payment, see if you can negotiate so your business doesn’t get reported to the credit bureaus.

Decrease your credit utilization ratio

The credit utilization ration is explained by credit site The Balance as the ratio of your credit card balances to credit limits. It measures the amount of your credit limit that's being used. For example, if your balance is $300 and your credit limit is $1,000, then your credit utilization for that credit card is 30%. The lower your credit utilization, the better.

Use more credit

Although it’s best to keep your credit utilization ratio low to improve your business credit, you can’t establish business credit without using credit in the first place. The more credit accounts you regularly use, the easier it is to build your business credit. That said, if you don’t pay your bills on time, you’ll struggle to achieve a good business credit score, so to improve your score, only use credit for purchases you absolutely know you can cover.

Establish credit accounts with suppliers

If you work with vendors or suppliers, you can build your business credit by opening accounts with them. Before you do, make sure they report payments to credit bureaus. That way, your timely payments will be reflected on your credit reports and lenders will have access to them.

Add positive payment experiences to your credit file

The credit card issuers and lenders you have accounts with send accounts updates to credit bureaus including your current balance, payment history, and other details. This information is added into your credit report and used to generate your credit score when it's requested by businesses and yourself.

Note that not all the bills you pay monthly get reported to credit bureaus regularly. For example, your phone, cable, and insurance payments don’t help build a positive credit history, even when you pay on time. However, if you default on these payments (by becoming several months delinquent), the late payments could be added to your credit report and hurt your progress toward building a good credit score.

It takes time to add positive information to your credit report, so try to be patient with the process.

Dispute any errors and inquiries

If you haven’t reviewed your credit report recently, now is the time. In a Wall Street Journal survey, 25 percent of small business owners who checked their business credit reports found errors that put them in a riskier category.

There’s a reason why your credit report might be incorrect. Unlike consumer credit, business reports are not covered by the Fair Credit and Reporting Act.

If you’ve reviewed your report and found inaccuracies, contact Experian, Equifax and D&B immediately to make corrections on your report.

Avoid closing accounts

If you pay off and cancel the old credit cards, you can risk of lowering your business credit score. This is because your cards could be having a good history but now that you do away with them, you automatically remove the good years of credit that had contributed to the current good score that your business is having. Retain your old credit cards by keeping them open. Even if you pay off any credit card, do not close it no matter what as this could really hurt your business credit score.

Fix your personal credit

Some lenders check personal as well as business credit so it’s important to keep that score high as well. A FICO personal credit score is a personal credit scoring system created by the Fair Isaac Corporation. It’s presented as a 3-digit number derived from detailed information about your credit history. Your personal score can affect things like car loans and mortgages but here we’re going to explore how this number affects your ability to qualify for a business loan.

Your personal credit score is a number that represents your creditworthiness and tells lenders the potential risk of lending money. In other words, how likely are you to pay back the money you’ve borrowed. Your FICO score is usually the first detail lenders review to determine creditworthiness. Important to note: A credit inquiry can lower your score.

Here’s the good news. If your personal score isn’t high enough to qualify for a low-cost loan, you CAN raise that number. Take these steps ASAP.

  • Pay your debts on time and as agreed. Debts can include credit cards, car payments, your mortgage, other business loans, etc.
  • Continue to use your credit cards but pay them off each month
  • Don’t get anywhere near your credit limits
  • Open new accounts as a last resort

Deal with any judgments, liens, or other black marks on your report

Credit reporting agencies are required to remove most derogatory items from your credit history after seven years, including late payments, defaults, collections and foreclosures. If you have black marks, do your best to dispute and have them removed.

Keep revolving debt low

Revolving debt is the kind of debt that credit cards offer and is usually an easy way to get credit. It can be a useful tool when used with discipline. The lower your monthly balances the lower your utilization percentage will be.

Stay on the right side of the law in terms of business taxes, business licenses, insurance policies, and others

Most small businesses need a combination of licenses and permits from both federal and state agencies. The requirements — and fees — vary based on your business activities, location, and government rules. Learn more from the SBA.

Some types of insurance are also required. Most businesses need to purchase at least the following four types of insurance: Property Insurance, Liability Insurance, Business Vehicle Insurance and Workers Compensation Insurance. For additional information, review this post from the SmartBiz Small Business Blog: Types of Small Business Insurance.

DISCLAIMER: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.

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