Are you a business owner struggling to access affordable financing? If so, improving your business credit is essential. A strong credit score can open doors to loans, credit cards, and other financial opportunities that can help your business grow.
But knowing how to improve business credit is hard, right? It’s not as complicated as you might think. In this comprehensive guide, we’ll walk you through the steps you need to take to boost your business credit score and unlock access to affordable financing.
Why is Knowing How to Improve Business Credit So Important?
Good business credit is essential for accessing financing at affordable rates to help your company grow. Omni Resources works with hundreds of businesses every year to repair bad credit, which can stand in the way of getting a loan, securing a credit card, leasing or buying space, purchasing equipment, or partnering with other businesses.
Benefits of Improving Business Credit
There are many benefits to having good credit. Here are 7 benefits of knowing how to improve your business credit:
- Access to Affordable Financing: A strong credit score can help you secure loans and credit cards with lower interest rates, saving you money over time.
- Better Terms on Loans and Credit Cards: Lenders are more likely to offer you favorable terms, such as longer repayment periods or higher credit limits when you have a good credit score.
- Improved Business Opportunities: A strong credit history can open doors to partnerships, vendor relationships, and other business opportunities.
- Enhanced Vendor Relationships: Suppliers and vendors may be more willing to offer extended payment terms or discounts to businesses with good credit.
- Lower Insurance Premiums: In addition to the benefits mentioned earlier, a good credit score can also help you secure lower insurance premiums for both your business and personal vehicles.
- Increased Borrowing Capacity: Lenders are more likely to offer higher credit limits to businesses with a strong credit history, giving you more financial flexibility.
- Improved Online Reputation: A good credit score can contribute to a positive online reputation for your business, which can attract more customers and build trust.
By improving your business credit, you can unlock a world of opportunities and enhance your business’s financial health.
Understanding the Three Major Business Credit Bureaus
Your business credit report plays a crucial role in securing a business loan, negotiating payment terms with new vendors, and obtaining various forms of business credit. The primary providers of business credit reports are:
- Dun & Bradstreet (D&B)
- Experian
- Equifax
They are commonly known as the “big three” business credit bureaus.
Each credit bureau is unique, and each analyzes its data differently, affecting score calculations and, in turn, your ability to borrow money.
1) Dun & Bradstreet (D&B)
Among the prominent credit bureaus, Dun & Bradstreet (D&B) stands out as the sole entity dedicated exclusively to business credit. D&B’s primary emphasis lies in documenting a business’s interactions with vendors and suppliers, which is why prospective suppliers commonly refer to D&B reports before extending trade credit to your business. In addition to supplier-submitted business-to-business data, D&B incorporates public records, industry-specific information, and historical data from your D&B profile to formulate their credit scores, with the PAYDEX Score being the most renowned among them.
Other D&B business credit scores include:
- Supplier Evaluation Risk Rating: This rating predicts the likelihood that a business might stop delivering its goods and services over the next 12 months.
- Delinquency Predictor Score: This score measures whether or not a business is likely to pay its bills late or go bankrupt over the next 12 months.
- D&B Rating: This rating relies upon company financial statements and other public information to develop an overall rating for a business’s creditworthiness. Making sure that your D&B profile includes accurate, up-to-date financial statements can greatly improve your D&B rating.
- Credit Limit Recommendation: Banks and creditors may look at this recommendation, which is based on a business’s size, industry, and payment history.
- Failure Score: This score is designed to predict the possibility that a company will seek legal relief from creditors or go out of business and leave creditors unpaid in the next 12 months.
The PAYDEX Score
The PAYDEX score, which is graded on a 100-point scale, serves as a measure of your promptness in fulfilling financial obligations to vendors and suppliers who report to Dun & Bradstreet (D&B). It signifies the reliability of your bill payments within this context. If you maintain a positive payment record with suppliers who do not report to D&B, their data will not be factored into the calculation of your PAYDEX score. Given the significance of the PAYDEX score, it is advisable to proactively encourage current vendors to report your payment history to D&B.
How to Improve Business Credit in 7 Steps
Now that you have a better understanding of the major business credit bureaus and the importance of your business credit reports, let’s delve into the actionable steps you can take to improve your business credit score.
Improving your business credit takes time and effort, but it’s a worthwhile investment. Here are 7 steps you can take to improve your business credit score:
1. Check Your Business Credit Report and Dispute Errors:
- Obtain a copy of your business credit report from the major credit bureaus.
- Review the report carefully for any errors or inaccuracies.
- Dispute any errors you find to correct your credit history.
2. Pay Your Bills on Time and Avoid Late Payments:
- Make all payments on time, including credit card bills, loans, and utility bills.
- Set up automatic payments to help you stay on top of your bills.
- Avoid late payments, as they can have a negative impact on your credit score.
3. Maintain a Low Debt-to-Credit Ratio:
- Keep your debt-to-credit ratio low by using only a portion of your available credit.
- Avoid carrying high balances on your credit cards.
- Pay down existing debt to improve your credit score.
4. Build a Positive Payment History:
- Establish a history of on-time payments by using your business credit cards responsibly.
- Make regular payments on any loans or lines of credit you have.
- Avoid closing credit accounts, as this can negatively impact your credit score.
5. Establish Business Credit Lines and Trade References:
- Open business credit lines, such as credit cards or loans, to build your business credit history.
- Establish trade references by paying your vendors on time.
- Provide references when applying for new credit.
6. Monitor Your Progress and Adjust:
- Regularly check your business credit report to monitor your progress.
- Make adjustments to your credit management strategy as needed.
7. Work with the Professionals at Omni Resources:
Many business owners find the process of improving business credit complex and time-consuming. That’s where Omni Resources comes in.
Here’s how Omni Resources can help you:
- Business Consultation: We’ll work with you to understand your specific financial situation and goals.
- Personalized Strategy: We’ll develop a customized plan to help you improve your business credit score with options for business funding solutions.
- Expert Guidance: Our team of experienced professionals will provide you with the knowledge and support you need to succeed.
- Unlock Financing: With a strong credit score, you’ll be able to access better financing options and grow your business.
By taking these steps, you can improve your business credit and unlock a world of financial opportunities for your business.
What the DUNS Number Means For Your Business
Have you ever encountered the term “DUNS number” and found yourself pondering its significance? A DUNS number, created by Dun & Bradstreet, serves as a unique nine-digit code that functions as your business’s digital identity in the world of credit reporting. It stands for the “Data Universal Numbering System”.
At its core, a DUNS number is akin to a business’s credit report card—a concise summary that lenders and potential partners refer to when evaluating your financial credibility. It’s a pivotal factor that can influence decisions related to business partnerships and lending.
What makes a DUNS number noteworthy? Let’s embark on a journey through its benefits and discover the real-world advantages it brings to your business:
- Building a Strong Credit Profile: Think of a DUNS number as a cornerstone for your business’s credit history. By cultivating a robust credit profile, you enhance your appeal to other businesses seeking collaboration or partnerships.
- Clear Separation of Finances: One of the most compelling features of a DUNS number is its ability to segregate personal and business finances. This separation is particularly valuable when managing substantial business debts while safeguarding personal financial stability.
- Negotiating Favorable Terms: Armed with a DUNS number, you hold a key that can unlock favorable terms when interacting with suppliers and vendors. Demonstrating your business’s creditworthiness can expedite loan applications and secure more advantageous conditions.
- Global Access and Opportunities: As your business endeavors stretch across borders, a DUNS number becomes an essential tool. It opens doors to collaborations with international entities and even the esteemed U.S. government, fostering a sense of trust and legitimacy.
- Accelerating Certifications and Applications: Imagine the process of obtaining business certifications becoming smoother and more expedited. A DUNS number expedites steps such as securing an SSL certificate for your company’s website and streamlining your path to progress.
Conducting a DUNS number lookup can unveil whether your business already has one. Visit Dun & Bradstreet or speak with an Omni Resources representative to help you.
A Caveat to the DUNS number
In the ever-evolving landscape of business identifiers, a new contender has emerged: the Unique Entity Identifier (UEI). While this fresh entrant has taken center stage for federal government dealings, the DUNS number continues to hold significance. It remains your steadfast companion, opening doors beyond federal matters, and allowing you to secure credit cards, lines of credit, and loans.
Equifax
Equifax takes all the information collected by the Small Business Finance Exchange (SBFE) and turns it into a report. The SBFE is a group of small business lenders in the United States who share payment data about their small business customers.
This data is crucial because it shows how small businesses work with lenders, and banks use it to decide if a business is creditworthy.
Just like the other business credit bureaus, Equifax also looks at trade credit information and data from public records. Public records can include things like liens, bankruptcies, or judgments against a business. Equifax puts all of this information together to create a company’s credit report. Equifax credit reports include:
- Payment Trend and Payment Index: This shows the business’s payment trends over the past 12 months and how it compares to industry norms.
- Equifax Business Credit Risk Score: This predicts the likelihood of a business incurring a 90-day severe delinquency or charge-off over the next 12 months. The score ranges from 101 to 992; lower scores indicate higher risk.
- Equifax Business Failure Score: This predicts the likelihood of a business failing through either formal or informal bankruptcy over the next 12 months. It ranges from 1000 to 1610; lower scores indicate higher risk.
Experian
Experian collects credit information from suppliers and lenders. They also look at the information available in the public record, including legal filings from local, county, and state governments, as well as information from credit card companies, collection agencies, corporate financial information, and other databases.
Experian looks at the number of credit transactions, outstanding balances, payment habits, how much of your available credit you use, and the details of any current liens, judgments, or bankruptcies. Time in business, the size of your business, and your business’s Standard Industry Classification (SIC) codes are also part of your Experian Business Credit Score. This score ranges from 0 to 100 and breaks down as follows:
- 0-15: High Risk
- 16-30: Medium Risk
- 31-80: Good Credit
- 80-100: Excellent Credit
Experian also generates a Financial Stability Risk Rating that measures the risk of a company’s going into bankruptcy or severe financial distress in the next 12 months. This rating ranges from 1 to 5, with lower ratings indicating lower risk.
Because Experian collects both trade data and bank data, its business credit report could be considered the most balanced of the big three. Whether your business relies mostly on trade credit for capital, accesses capital from a bank, or does both, Experian will have the necessary data to provide insights into your business.
Business Credit Reports
Your business credit report is only as accurate as the data the credit bureaus have to work with. It is best practice to review your business credit report annually with all three major business credit bureaus. An unchecked error that accumulates over time can severely impact your business.
For example, incorrect information in your D&B profile, such as the wrong SIC code, could negatively affect your business credit score and make it harder to obtain vendor credit.
While personal credit reports can be obtained for free, the same does not apply to business credit reports. Nonetheless, it is worthwhile to pay the fee in order to access the information within your business credit report. Additionally, the business credit bureaus provide services for monitoring your business credit, which notify you of any changes in your credit report and score.
Since each credit reporting agency wants to maintain accurate data, D&B, Equifax, and Experian all have dispute resolution processes you can use to request corrections or updates to your business information. Only the business owner or a registered corporate officer can make these requests.
Improve Your Business Credit with Omni
Improving your business credit is essential for unlocking the financial opportunities your business needs to grow. While it may seem daunting, with the right guidance and marketing strategies, it’s achievable.
Omni Resources is here to help. Our team of experts can provide you with personalized support and tailored solutions to improve your business credit score. Don’t let bad credit hold your business back. Contact us today for a consultation and start taking steps to boost your business credit and achieve your financial goals.