There are three main credit bureaus with which it is always good to be in good standing if one is looking to start or expand upon a small or mid-sized business. In terms of making sure the work being done to build a positive credit score is effective it is important to understand how a credit score can affect your business and how credit scores are reported. Andrew Knight New Canaan not only works with a number of small and mid-sized businesses as a front-end developer but also has experience building his own company as a freelance technology expert.
How is credit reported?
For Andrew Knight, it is important every small business owner understands the way credit is created and reported to make sure the best options are always available. Experian reports the first step in understanding business credit is to get a feeling for how scores are created which is a little different to those handed out for personal credit as they are rated o a scale from zero to 100; a zero credit score offers a high risk while a 100 is seen as an extremely low risk.
In order to build a positive credit score for a small business, it is important to utilize as much credit as possible in order to create a positive credit file with lines of credit reported to bureaus on a regular basis. Aspects of credit such as payment history and outstanding balances all come together to give a credit score which is rated from zero to 100. Unlike the personal credit score industry, there is no set formula for calculating business credit so it is important each individual business does as much as possible to create a credit score to be proud of.
Create lines of business credit
When starting a business and throughout the life of a company, lines of credit with suppliers allow a small business to grow through the use of various lines of credit offered allowing payments to be made days or weeks after an order is fulfilled. After making sure suppliers report to the three credit agencies it is important to not only open these lines of credit but also make payments on time. Nerdwallet reports a business credit score will always benefit from various lines of credit being opened and maintained in a healthy and efficient manner.
Payments should be made on time
According to Andrew Knight New Canaan, the best option for developing and maintaining a good credit score is to make sure the payment history a lender looks at is free from any major blemishes. Making payments early or on time is the simplest and most efficient way of ensuring a small business credit report is maintained at a high level for the future. Much like with a personal credit score, a business score will be negatively affected if lenders report persistent late or missed payments to the three major bureaus.
Information should be kept up to date
This may sound like a simple way of doing things but missing or incorrect information reported to the credit bureaus can have a major effect on the credit score of a small business. All bureaus will accept changes to personal business information including financial statements, address, and telephone numbers; employee numbers are another piece of information which can be provided to keep the credit score of a business up to date and at the highest possible level. As each bureau calculates data in a different way, the best option is to provide as much up to date information as possible to all three to maintain all algorithms used to create a small business credit score.
Avoid problems with public records
In essence, a small business credit score is the level of trust a lender can have in your company. Public records often form part of the calculations used to determine a score including the issue of court judgments and liens placed against a company. If debts make their way to court and a judgment is placed against a small business or its owner the bureaus will take a negative view of the impact on a credit score.
Although small business credit scores are calculated differently to personal credit scores it is important to remember the process is similar to that used to create a personal credit score. Remaining in good standing is a positive first step with Knight New Canaan recommending using just 20 to 30 percent of available credit lines at any one time.