4 Simple Tricks to Fix a Bad Business Credit Score

K2ConceptsK2Concepts Posts: 13,340Administrator El Jefe

Don’t let a bad credit score hurt your small business. Check your credit reports for errors and learn how to correct these common problems.

Bad business credit scores are bad news for growing companies. A bad score can prevent you from getting financing or establishing the business relationships you need to take your business to the next level.

Understanding your scores, however, can get complicated because not all scores are the same. Each uses different data and a different algorithm to calculate your score. The main business credit scores you’ll want to know about are:
  1. D&B PAYDEX Score
  2. Experian Intelliscore Plus
  3. FICO SBSS Score
  4. Equifax Business Credit Risk Score
Here are four ways to change a bad business credit score for the better.

Pay Off Any Delinquent Accounts

Payment status on accounts reporting to business credit reporting agencies has the biggest effect on your scores. In particular, it will have a big impact on the D&B’s PAYDEX score, which is commonly used by vendors and suppliers to evaluate the health of your business. PAYDEX is based entirely on your payment experiences, or each account that you have and when you pay your bills for those accounts. Delinquent or very late accounts will bring down your score and can keep you from qualifying for flexible trade terms, like net-30 or net-90 terms with your vendors.

Your Experian, FICO and Equifax business credit reports will also take into account when you pay your suppliers and credit accounts. Payment status accounts for about 50% of your Experian business credit score, so any accounts that show up on your report should be current.

See what accounts are on your report. Get your personal and business credit scores for free from Nav.

Pay Your Current Accounts Early

Businesses can get “extra credit” on their score if they pay their bills early. To land a perfect 100/100 on your D&B PAYDEX score, you’ll need to regularly pay off accounts that report to D&B before the bill is actually due.

About 10% of Experian’s business credit score hinges on payment trends, or average days beyond terms (DBT). Pay early more often than not to keep that your DBT close to zero and avoid weighing down your scores. The Equifax business credit score compares your DBT to national and industry averages, so paying your accounts early can put you ahead of the competition.

Reduce High Balances

If any of your total current account balances appearing on your business credit reports are close to your recent highest credit balance, those will appear as high utilization ratios and may be bringing down some of your scores.

We recommend trying to stay below 30% of your highest account balance—above 30%, you might start seeing a negative impact on your scores. The higher the ratio, the greater the impact.

There are two ways you can bring down your balances:
  1. Pay down an account. Check your business credit report to find out which accounts are contributing to you high balance. Pay those accounts down, and continue to pay it in full month after month.
  2. Increase your total available credit. This won’t have a direct effect on your utilization, but it can play a role in your creditworthiness in the eyes of lenders. You can do this by getting a credit card or line of credit in the name of your business.
Remove Reporting Errors

Errors that bring down your scores could be:
  1. An account that is showing as delinquent on your report but you paid off.
  2. A UCC filing that’s been misidentified as pertaining to your business and appears on your report.
  3. Your SIC code shows that you operate in an industry that’s different than the one you identify with (especially if that industry is considered higher risk).
  4. You’ve been in business for, say, 12 years and your report shows only five.
Errors aren’t always easy to fix, but they can make a significant difference.

In the case of the first error, you’d want to contact the creditor that’s reporting the delinquent account and ask them to update your information with the credit reporting agencies. To fix the other three errors, you’d need to contact the agency misreporting your information to correct the problem.

Strong business credit scores can be one of a business owner’s greatest assets—just as a bad score can be one of its greatest hindrances. Put your business in a position to get the terms and financing you need by following simple tricks for a better score.
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