7 Most Significant Factors Affecting Your Business Credit Score

A business credit score of an organisation is generated with the help of the information provided by its creditors. It is crucial for any business because your chances of getting secured and unsecured business loans in the future depend on your credit score. It can also be looked on by the companies planning to deal with you in any other way like merger or acquisition.

Now that it’s established that how crucial your business credit score is, let’s look at the 7 significant factors impacting it: –

1.     Number of Credit Applications

While looking for an personal business loans desperately, you might apply to multiple financial institutions at a time. This move can turn against your creditworthiness. Numerous attempts to get a loan can be perceived as not a good sign for your company. Thus weigh in your options carefully before applying anywhere. And keep the application to the minimum number to get the credit.

2.     Credit Utilisation Ratio

The credit utilisation ratio depends upon how much of that available credit you are using. The formula for credit ratio is your current actual credit divided by your current credit limit. You should utilise around 30-35% of your credit limits to be in the good books of the lender companies. Anything more than that can be seen as your company’s too much dependence on credit.

3.     Payment History

Your payment history must not show any outstanding beyond its due date. And it will be better for your credit score if you can pay your creditors and vendors before the due date. All the pre-payments earn brownie points for your credit score. If there comes a situation when you need an instant business loan, your unspotted payment history proves to be an advantage.

4.     Credit History & Outstanding Debts

Credit history is one of the major components of your credit report, which makes your credit score. It includes the following factors:-

  • Duration of your credits
  • Repayment history
  • Present and past loans

To keep this data healthy, you should take credits for a longer duration and consistently pay your instalments. It will also help if you have a considerable number of loans and your past loans are all paid off.

5.     Credit Capacity

Your credit capacity largely depends on the kind of cash flow your business generates. Bank ratings in your favour and healthy payment history also plays an important part in it. To analyse your credit capacity, lenders look into factors like:-

  • Repayment of loan or business line of credit
  • The extension of your credit limit
  • Late payments, if any

6.     Management of Credit Cards

Whenever you apply business loan for a new business, you don’t have much to show for transactions. But the usage of your business credit cards can add up to your credit score. If you manage multiple credit cards, make sure you pay at least more than the minimum due every month for each card. You can also transfer your balance to another card with lower interest rates.

7.     Collateral Value

Your business assets like machinery & equipment, stocks, land, bonds, and other expensive inventory can be your collateral. It is a type of guarantee you offer for an unsecured business loan. The lender company can sell off these assets in case you fail to repay your loan. Although not all banks demand it, you should always hold robust collaterals as a backup plan.

To Sum Up!

Your investment in your company and your personal credit score also play a vital role in increasing the value of your business credit score. It’s basically about keeping your debt record clean and managing your current credits wisely.

Author Bio:

Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at [email protected]

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