At JenniferLangFinancialServices.com, we help small businesses apply for financing through our network of banks including SBA loans, Bank Term loans, and more financing options. When we interview small business owners who have been funded, we ask if they have tips for others seeking a business loan. Many say to pay very close attention to your business credit score, keeping them high.
As a consumer, your personal credit score is important when shopping for a home mortgage, buying a car, or applying for a credit card. These personal credit scores don’t tell the whole story of your business. The other score you need to be on top of is your business credit score, also known as the FICO SBSS score.
Why is the FICO® SBSS Business Credit Score Important?
When applying for an SBA loan through our bank partners, your FICO SBSS score will be considered. FICO stands for the Fair Isaac Corporation, the largest and best known of several companies that calculate credit scores. SBSS stands for the Small Business Scoring Service.
This score is one factor that helps lenders determine how likely your business is to make timely loan payments and ultimately pay back the loan in full.
How is the FICO SBSS Score Calculated?
In short, your FICO SBSS score is calculated by reviewing personal and business credit history. Other business financial information also comes into play like the age of your business, number of employees along with financial data, like revenue and assets.
The SBSS score ranges from 0-300 with the higher your score, the better.
Why Would You Want to Improve Your Business Credit Score?
According to the Small Business Administration (SBA), insufficient or delayed financing is the second most common reason for business failure. Because anyone can view your business credit score—it’s not confidential—it’s important to establish business credit from the start to help you obtain better interest rates, loan terms, and negotiation leverage on payment periods with suppliers.
8 Ways to Improve Your Business Credit Score
If your business credit score needs work, review these 8 strategies to help strengthen yours.
Check your business credit report
There’s no shortage of sites online to get your personal credit score but you might not know where to go for your business credit score. If you find any errors, dispute them immediately. Incorrect information can impact running your business.
Pay your bills on time
This step is a no brainer. Lenders or vendors don’t want to work with a business that drags their feet when paying bills. Use these strategies to avoid paying late and incurring penalties.
- Make a list of every bill
- Find out when your payments are due
- Add your payments to a calendar
- Decide how much you want to pay
- Set up automated payments whenever possible
- Devise a system for manual payments
- Sign up for reminders
If you’re unable to make a timely payment, see if you can negotiate so your business doesn’t get reported to the credit bureaus.
Decrease your credit utilization ratio
The credit utilization ration is explained by credit site The Balance as the ratio of your credit card balances to credit limits. It measures the amount of your credit limit that's being used. For example, if your balance is $300 and your credit limit is $1,000, then your credit utilization for that credit card is 30%. The lower your credit utilization, the better.
Establish credit accounts with suppliers
If you work with vendors or suppliers, you can build your business credit by opening accounts with them. Before you do, make sure they report payments to credit bureaus. That way, your timely payments will be reflected on your credit reports and lenders will have access to them.
Add positive payment experiences to your credit file
The credit card issuers and lenders you have accounts with send accounts updates to credit bureaus including your current balance, payment history, and other details. This information is added into your credit report and used to generate your credit score when it's requested by businesses and yourself.
Note that not all the bills you pay monthly get reported to credit bureaus regularly. For example, your phone, cable, and insurance payments don’t help build a positive credit history, even when you pay on time. However, if you default on these payments (by becoming several months delinquent), the late payments could be added to your credit report and hurt your progress toward building a good credit score.
It takes time to add positive information to your credit report, so try to be patient with the process.
Dispute any errors and inquiries
If you haven’t reviewed your credit report recently, now is the time. In a Wall Street Journal survey, 25 percent of small business owners who checked their business credit reports found errors that put them in a riskier category.
There’s a reason why your credit report might be incorrect. Unlike consumer credit, business reports are not covered by the Fair Credit and Reporting Act.
If you’ve reviewed your report and found inaccuracies, contact Experian, Equifax and D&B immediately to make corrections on your report.
Avoid closing accounts
If you pay off and cancel the old credit cards, you can risk of lowering your business credit score. This is because your cards could be having a good history but now that you do away with them, you automatically remove the good years of credit that had contributed to the current good score that your business is having. Retain your old credit cards by keeping them open. Even if you pay off any credit card, do not close it no matter what as this could really hurt your business credit score.
Fix your personal credit
Some lenders check personal as well as business credit so it’s important to keep that score high as well. A FICO personal credit score is a personal credit scoring system created by the Fair Isaac Corporation. It’s presented as a 3-digit number derived from detailed information about your credit history. Your personal score can affect things like car loans and mortgages but here we’re going to explore how this number affects your ability to qualify for a business loan.
Your personal credit score is a number that represents your creditworthiness and tells lenders the potential risk of lending money. In other words, how likely are you to pay back the money you’ve borrowed. Your FICO score is usually the first detail lenders review to determine creditworthiness. Important to note: A credit inquiry can lower your score.
Here’s the good news. If your personal score isn’t high enough to qualify for a low-cost loan, you CAN raise that number. Take these steps ASAP.
- Pay your debts on time and as agreed. Debts can include credit cards, car payments, your mortgage, other business loans, etc.
- Continue to use your credit cards but pay them off each month
- Don’t get anywhere near your credit limits
Open new accounts as a last resort
Deal with any judgments, liens, or other black marks on your report
Credit reporting agencies are required to remove most derogatory items from your credit history after seven years, including late payments, defaults, collections and foreclosures. If you have black marks, do you best to dispute and have removed.
Keep revolving debt low
Revolving debt is the kind of debt that credit cards offer and is usually an easy way to get credit. It can be a useful tool when used with discipline. The lower your monthly balances the lower your utilization percentage will be.
Stay on the right side of the law in terms of business taxes, business licenses, insurance policies, etc.
Most small businesses need a combination of licenses and permits from both federal and state agencies. The requirements — and fees — vary based on your business activities, location, and government rules. Learn more from the SBA.
Some types of insurance are also required. Most businesses need to purchase at least the following four types of insurance: Property Insurance, Liability Insurance, Business Vehicle Insurance and Workers Compensation Insurance.
DISCLAIMER: The Jennifer Lang Financial Services, LLC. Blog and other related communications from JenniferLangFinancialServices.com are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.