You know that having good credit is important for you personally — if you want to buy a car or a house, having a higher credit score can help you find a loan at a lower interest rate.
But did you realize that having good credit is equally as important for your business?
Why Good Credit Matters
Even if at this moment, you can’t imagine that you will ever take out a business loan, you may find yourself one day wanting to grow your business. Being able to get a line of credit at a low interest rate can help you expand your company without taxing your revenue stream.
But even if you never take out a loan, having good credit is important for other reasons. If you buy supplies from vendors, your credit score can impact your payment terms with them. Consider the fact that you are a bit of a risk for the vendor; if you don’t pay your invoice, they’re out that money. If your credit is bad, they’ll be less lenient on you paying before delivery, whereas having good credit can give you a little leeway in terms of when you pay that invoice.
5 Ways to Amp Up Your Credit Rating
No matter where your personal credit is right now, it can always be better, right? Here are a few ways you can improve your credit rating over time.
1. Use Credit Smartly
You may think the best thing you can do would be to use cash to pay for business expenses, but actually, you can improve your credit rating by using credit the right way.
Consider opening a business credit card or line of credit to cover monthly expenses. The key is to pay off your balance each month before interest accrues. The perk of a business credit card is racking up rewards (get that next business flight covered through points!), and a line of credit can give you the cash flow to expand operations.
2. Set Up Credit with Your Suppliers
Each time you establish a new relationship with a supplier for your business, ask for a credit line. Not only does this appear on your credit report (points, again, for paying your bills on time), but it also frees up your cash. For example, if you need to order $500 worth of party favors for your event planning business, and you know that your client will pay you in the middle of the month, knowing that you can pay that supplier at the end of the month means you will have the money in hand.
3. Regularly Check Your Credit Reports
These days, there are several places you can get free access to your credit reports, as well as free credit monitoring tools. Make a habit of checking your reports to ensure that there are no discrepancies on them. For example: a mislabeled late payment could ding your credit rating, so if you know you paid your bill on time, reach out to the credit union to file the discrepancy and ask for it to be removed.
4. If You Maintain a Balance, Pay More Than the Minimum
If you find yourself charging a larger amount and unable to pay it off within the month, be aggressive about your payback plan, and always pay more than the minimum required amount.
If you expect this to happen regularly, look for business credit cards with the lowest possible interest rates, or consider a balance transfer with 0% interest if you have access to an offer like this.
5. Be Diligent
Your business (and personal) credit are in your hands: educate yourself about how to build your credit, and constantly stay on top of your score. It’s not difficult to see your credit score rise a few points every month, but you’ve got to be diligent about it!