As a business, are you having trouble getting a bank loan? Or did the bank agree to give you a loan but charge exorbitant interest rates or provide fewer loan options? Or did they require substantial security, such as real estate, or did they reject your loan application?
On scrutiny, the reasons could be bad credit history in your business credit score report. While you cannot fix the score immediately, knowing why it happened can help you take systematic steps to improve and correct it over time.
Why Is My Company Credit Score Low?
It’s crucial to comprehend why the company’s credit score declined before attempting to restore it. The causes may be particular to your company and not universal. There could be many reasons for a low credit score, from overdue credit repayments to irregular payment habits. Factors that can lower your business credit score are:
- Late payments: If you consistently pay your bills late, it can negatively impact your credit score.
- High credit utilisation: If you use a large portion of your available credit, it can be a red flag to lenders and negatively impact your credit score.
- Lack of credit history: If your business is new or has a short credit history, it can be more challenging for lenders to assess your creditworthiness, which can lower your credit score.
- Negative information on your credit report: Detrimental information on your credit reports, such as bankruptcies or tax liens, can significantly lower your credit score.
- Inconsistent or incomplete information on your credit report: If there is conflicting or incomplete information on your credit report, it can make it harder for lenders to assess your creditworthiness, and this can lower your credit score.
- High debt levels: If your business has a high level of debt relative to its assets or revenue, it can be seen as a risk to lenders and lower your credit score.
What To Do if Your Business Credit Score Is Low?
Obtaining the required working capital at competitive rates and winning contracts with better terms are two advantages of having a good business credit score. Vendors and suppliers may also review your credit report and offer terms based on that information. If your company’s credit score is low, you should prioritise improving it. How to improve your credit score is as follows
Be regular with your EMIs and credit card payments
Pay all bills on time and do not miss your EMIs and credit card payments. Paying all your vendors and suppliers within the agreed time boosts your business credit score. The longer the invoice is overdue, the lower the credit score.
Exercise caution when using credit
It is crucial to exercise caution and to actively work on improving the credit score by paying bills on time, keeping credit card balances low, and regularly monitoring the credit report.
Keep your debt levels & credit utilisation ratio in check
You can build your credit score using a credit card. However, it would help if you kept the credit utilisation ratio below 33% per month.
Use flexi-loans for short-term operational costs
Flexi-loans, also known as a line of credit or revolving credit, allow you to meet your short-term needs while having flexible repayment options to suit your cash flow.
Monitor your business credit report regularly
Regularly checking your business credit reports can help you identify and address any issues that may negatively impact your score.
Verify the credit report for accuracy
Check your credit report at regular intervals for data accuracy and report any errors. It usually takes a month to verify and correct any errors. Once the mistakes are rectified, you will see an improvement in the business credit score.
Do not mix business and personal finances
By keeping the personal and business accounts and credit cards separate, you can avoid affecting the credit score due to personal finances.
It’s important to monitor your business credit score and take steps to maintain a strong score, as it can significantly impact your ability to secure financing and other business opportunities.