Sign up for Funding Circle newsletter!
Get our latest news and information on business finance, management and growth.
Updated: August 31st, 2023
Your business credit score has the power to either push you toward your business goals or hold you back. While a strong credit score can expand your opportunities, a poor one can limit your options—financially and logistically.
The good news is that your credit score isn’t permanent; just like your personal score, there are ways to help improve it. Whether you’re trying to build business credit for the first time or raise your score after a difficult few years, there are numerous steps you can take to increase your score and position your business for success. First, though, here’s a refresher on the basics of business credit.
A business credit score is a number that indicates how creditworthy your operation is. Your score, which is based largely on your company’s history of debts and payments, shows lenders how reliable you are with borrowing money and making timely payments.
Whereas personal credit scores are based on a scale from 300 to 800—with scores of 700 or higher considered good—business credit scores range from zero to 100. The higher your score, the less risk you pose to lenders. Business credit scores between 50 and 79 are generally considered moderate risk, while scores of 80 or higher are considered low risk.
Strong business credit is critical to your business’s bottom line. Lenders, vendors, landlords, and credit card companies review your business credit score when deciding whether or not to work with you. If you have a better score, not only are you more likely to get approved for financing or secure quality trade agreements, you’re also more likely to get favorable terms.
With business financing, favorable terms can include lower interest rates, longer repayment periods, larger loan amounts, and bigger lines of credit. With vendor agreements, a better credit score might help you get discounts on orders or longer credit terms. A good business credit score can also give you more leverage when negotiating insurance premiums or commercial lease terms with a landlord.
A poor business credit score, on the other hand, makes it harder to qualify for financing and other opportunities, like landing an incredible office building. If you do get approved for financing, you might end up with higher interest rates or stricter payment terms.
Your business credit score is based on a number of different factors, including your business’s:
Yes, your personal credit score as a business owner does matter. While some lenders weigh personal and business credit scores equally when making lending decisions, others look solely at your business’s creditworthiness. Keep in mind, however, that if you’re a sole proprietor or still in the process of establishing business credit, your personal credit score carries more weight.
Raising your business credit score takes time, patience, and consistency. While change won’t happen overnight, adopting some of the habits outlined below could help get you closer to where you want to be.
Dun & Bradstreet, Equifax, and Experian are the three commercial credit bureaus responsible for collecting information and generating business credit scores. Not every lender or supplier reports information to all three bureaus, so it’s crucial to make sure your file is consistent and up to date across each different platform. Here are three actions to take:
Paying your bills on time—or even ahead of time—is one of the most reliable ways to improve your credit score. If you have a history of late or missed payments, it’s time to streamline your payment process.
Start by reviewing your cash flow and internal systems for receiving invoices, handling accounts payable, and paying bills. Do you use manual tracking systems or software? Who handles payments? What problems do you regularly run into? Answering these questions can help you figure out what to change.
You may need to upgrade your accounting software, for example, or set up automatic payments for utilities bills. Or maybe you need to develop a better process for approving invoices, so they move through the queue faster.
Responsibly using credit can increase your credit score over time. If you’re on top of your current business credit, consider applying for a new business credit card or business line of credit. The key is to make sure that the credit card companies or lenders you look at report to one of the main commercial credit bureaus. You can either ask them directly or peruse the FAQs on their websites (and here’s a list of credit card issuers that report to credit bureaus).
From there, practice smart spending and paying. Here are a few tips that can help:
A credit utilization ratio represents the amount of credit you’ve used relative to the amount you have available. Keeping your credit utilization ratio low can help raise your credit score because it means you’re less likely to max out your credit.
Experts generally consider 30% a good credit utilization ratio, 10% top-notch, and 0% too low to demonstrate smart fiscal management. As an example, imagine your business’s combined credit limit is $30,000 across all cards; in order to maintain that 30% credit utilization ratio, you want to make sure your used credit balance across all cards doesn’t exceed $9,000 before you bring it back to zero.
Here are a few ways to keep your credit utilization ratio low:
Consolidating your debt—getting a new loan to pay off multiple other loans—has the potential to help increase your credit score, but it’s not foolproof. In fact, consolidating your debt can actually raise your credit score initially. That’s why it’s important to discuss debt management options with your business accountant before making any moves.
In general, here are a few circumstances where consolidating your debt could help improve your credit score:
Improving your business credit score is a good investment in your business’s overall financial well-being. If you think a new line of credit could help raise your score, check out Funding Circle’s business lines of credit. We offer flexible financing with lines of credit from $5k to $250k—and no prepayment penalties. Apply now.
Paige Smith is a content marketing writer who specializes in writing about the intersection of business, finance, and tech. Paige regularly writes for a number of B2B industry leaders, including fintech companies, small business lenders, and business credit resource sites.