Credit scores are numerical ratings that measure whether an individual or entity like your business will likely repay a debt. Companies with high credit scores are more likely to repay debts quickly and lower risks than businesses with low credit scores.
Every business owner knows that having a good credit score is essential. But did you know that it’s also beneficial for your small business? Having a high credit score gives your business advantage if you ever need to get financing such as business loans.
Additionally, a good credit history helps you save money on interest rates, giving you better terms on loan options. This blog post will look at more ways a good score can help your small business.
What Is a Credit Score and Why Is it Important?
When an individual or entity approaches a lending institution for financial assistance, the institution is interested to know how quickly they will get their money back and what proof they can hold on to that shows the borrower will repay the debt.
That’s how the concept of credit score is formed. A credit score is a rating or number between 300 – 850, showing how credit worth a borrower is. Credit scores are determined based on the borrower’s history of taking and repaying credit.
To determine the credit history, lenders look into how many open accounts the borrower has, the total debt levels, how quickly they repay, and other things. Credit scores of 700 and above are considered good, which may mean borrowers get a lower interest rate as they pay back the loan. Scores above 800 are excellent, while scores ranging from 579 and below are pretty poor.
Credit scores are important because it directly affects how much lenders may be willing to borrow you or if they will be ready to borrow you.
How to Get and Maintain a Good Credit Score
As difficult as it may sound, the steps to getting and keeping a good score for your business are pretty simple.
- Ensure that you always repay your business loans on time, all the time. You can set automatic payment to ensure you don’t miss any due dates.
- Try to avoid getting close to your credit score limit. Don’t use more than 30% of your total credit limit.
- Consider having an extensive credit history, as scores are based on results over time. If reports show a long history of repaying your business loans early, you can score well.
- Only ask for the credit you need. When applying for credit, ensure not to use for a lot over a short period; it may send negative signals to lenders.
- Be on the lookout for errors in your credit report. Unspotted errors that remain undisputed may set you up for credit score problems in the future.
What Are the Advatanges of Having a Good Credit Score for Your Small Business?
As a small business, having a good credit score can help you in the following ways:
- It gives you a better interest rate deal with the lenders, helping you save money in the long run.
- You don’t have to worry when you need to take a business loan. Having a good record makes you confident that you can borrow when you need to make business decisions.
- You no longer need a guarantee to stand for you when you want to take business loans.
How to Use a Good Score to Your Advantage
You can use your credit score to your advantage as a small business. Here’s how:
- Look for, and take advantage of better credit cards that give you rewards and incentives when you spend with your card.
- Ask for your credit score limits to be increased from time to time to help you strengthen your credit score.
- Demand lower interest rates where applicable.
Tips for Improving Your Credit Score (If It’s Not Where You Want It to Be)
If you’re looking to improve your credit score, recommendations can help.
- Don’t close your credit card account, even if you’re not using it. Closing the account can negatively affect your score even when it’s not in use.
- Increase your credit limit. You can start by contacting your credit card companies to know about it. If your credit limit is raised, try not to spend the total amount so that you appear to have a low credit usage rate.
- You may need up to six months of on-time payments to see a difference in your credit score, so pay up and stick to the terms.
- If you don’t know how or don’t have the time to fix your credit, you can hire a credit repair company to help you.
Good credit scores are essential for your small business because it gives you the confidence you need to take loans whenever you wish. Armed with this article’s knowledge, you can now take your credit score improvement into your hands to get the best advantages.
If you think your credit score is excellent and wish to access small business loans, visit the above link.