A Strong Business Credit Score Set Your Business Up for Long Term Success

Every business has a credit score, just like individuals. No matter how big or small is your business, you will have to borrow money to effectively run the business or expand the operation. Your business credit score is one of the most important deciding factors when it comes to accessing funding to support and grow your business.

Unfortunately for many small business owners, building business creditworthiness is not similar to a race car where you can rev up the engine and get an almost instant result. It is more comparable to your driving record where everything including your past driving behaviour and actions is taken into consideration. Theis process often takes at least a year or two. Get started by following these several effective ways to build and maintain a healthy business credit score.

What Is a Business Credit Score?

A business credit score is not very dissimilar to a personal credit score. It represents the financial health of a company and helps lenders, suppliers and other creditors to understand the creditworthiness of the business.

Credit scoring firms use various methods such as trade experiences, past transactions and repayments, outstanding balances and etc. to calculate and analyse the creditworthiness of a company.

How Does It Differ from Personal Credit Score?

A personal credit score is based on an individual’s personal credit history which can includes the numbers of credit cards they signed up and the amount of debt they have. Business credit score and personal credit score are considered to be interrelated; both apply for different fields but serve similar purposes.

Many lenders prefer to evaluate business credit scores when reviewing business loan applications instead of personal credit scores. However, if you are just starting your business without any business credit or you’re a sole proprietor, lenders will rely on your personal credit history to assess your creditworthiness.

How To Improve Your Business Credit Score?

1. Review Your Business Credit Report on A Regular Basis

Many small business owners are totally oblivious to their companies’ credit scores. It should be noted that it is of utmost important to periodically review and monitor your business credit report  to understand the status of your business credit score and to avoid errors and inaccuracies that may deter your business to getting a loan at a favourable interest rate.

2. Correct Errors and Issues

Errors are not unheard of on credit reports. When you are reviewing your business credit report, take note of any outdated or incorrect information that can impact potential lenders’ ability to verify your credit. At best, these errors and inaccuracies will delay the loan application process. At worst, it could be the factor your application is rejected.

If you notice any inconsistencies with your report, you’ll need to dispute it with the credit scoring agency and provide documentation to amend it. In some cases, you may find signs of identity theft or business fraud, in which case you’ll need to correct it both on the report and through other channels. Catching possible fraud quickly can prevent your business financial downfall.

3. Always Settle Your Payments on Time

This is arguably one of the simplest and easiest ways to improve your business credit score. Late payments will not only be endangering your credit score, but they will also cancel out any measures you implement to increase your credit score by the fact that your business is still a debt risk.

These are a few strategies you can employ to make sure you pay your lenders, vendors, and landlords on time:

  • Set up automatic payments for recurring costs like utility bills and monthly debt repayments.
  • Keep track of accounts payable in a spreadsheet.
  • File invoices immediately after you receive them and set a reminder for payment due dates.

4. Don’t Max Out Your Credit

Similar to your personal credit score, part of your business credit score will depend on your credit utilization ratio – that is, the amount of credit you’ve used compared to the amount of credit you have available. The golden rule to follow here is to keep your credit usage below 30%. For example, if you have a RM100,000 line of credit and owe RM 90,000 on it, it can bring down your business credit score than if you have that same amount of debt, but have a RM 200, 000 line of credit.

5. Apply For and Use a Business Credit Card

This is one of the fastest and simplest way to start building your business credit score. A business credit card will not only make tracking expenses simpler and easier, as you use the card to pay business expenses it helps to establish the credit as well.

For those who own credit cards from previous businesses, don’t rush to cancel them. Having old credit cards or accounts show signs of reliability and reflect the trust suppliers and vendors have on your business, it also contributes to your credit history. If you have to cancel a select few, it’s always advisable to cancel the latest ones to minimize the impact on your credit score.

6. Consider Applying for A Small Loan

Small and Medium Business Loans are constructive tools to help boost your business credit score if you are able to make all your repayments in a timely manner. These loans will not only provide you with affordable and flexible capital which you can put into good use in running or expanding your business operation, but they are also easier to get approval as well.

7. Don’t Neglect Your Personal Credit Score

A lot of people avoid getting a credit card for fear they will get trapped in an endless debt cycle. However, a properly maintained line of credit is essential to getting the loan you need to jump-start your business. If you have a plan to open a business of your own in the near future, start building your personal credit score. Start early, or if you’ve been putting it off, start now.

Due to short credit history, credit scoring agencies may use personal credit history of startups or small business owners for credit assessment and calculation. So, make sure your personal credit score is in tip-top shape.

Want to know if you’re financially eligible for a business loan? Talk to our advisor to find out more.

Avex Credit is a licensed money lender in Malaysia under the purview of the Ministry of Housing and Local Government and governed through Money Lenders Act 1951 and Money Lenders Act (Amended) 2003. We provide a variety of personal, mortgage and business loans that are tailored to meet your specific needs.