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Home » Featured » 10 tips to Improve Your Credit Score

10 tips to Improve Your Credit Score- Capify

Featured, Money & Finance

10 tips to Improve Your Credit Score

January 25, 2022

Every business has a unique credit score that helps lenders and suppliers determine how reliable they are at repaying debt. Although your business credit score is separate to your personal score, it’s calculated in a similar way.

What is Creditworthiness?

A strong business credit score can improve your company’s chances of loan approval and help you attract lower interest rates. It can also help you to negotiate better payment terms and attract new customers.

But negative financial activity – like defaults or late payments – will lower your score and this can make it harder to be approved for finance.

Boosting or maintaining your business’s credit score can be especially difficult during times of economic downturn. With many business owners facing debt and cash flow issues at the moment, it’s never been more important to implement financial strategies to protect your operation’s credit score.

Your business credit score is the chief yardstick of your business financial health. That means a lot rides on your score like your:

borrowing power and viability
ability to access certain loan options to your business
power to negotiate lower business insurance rates and favourable loan terms
overall business competitiveness

What is a good Business Credit Score? And how to calculate it?

As a Small Business, you will undoubtedly want to secure trade credit or commercial finance to fuel business growth and success. When this time comes, all lenders you approach will begin by evaluating whether your business will make its repayments on time. To this end, they will look to your business credit score.

According to Equifax, your business credit score will range from 0 to 1200. A 0 score means your business is of high risk to lenders. On the other side of the scale, a 1200 score tells lenders that your business represents a low risk. Your score is calculated based on numerous factors including:

Number and type of previous credit enquiries
Amount of time your business has operated
Payment history including any defaults, judgments or external administration
Business structure, directors and other company details

Get a full understanding of the financial health and viability of your business. Get fully across your business credit score. In just a minute, Capify can tell you what Equifax Score band your business falls into. Best of all it will not cost you a cent or affect your credit rating in any way. So get your Business credit score now.

Your business credit score encompasses key commercial elements of your business. So it is not just prudent but essential to know your score inside out so you can make the most informed business and financial decisions.

Boosting or maintaining your business’s credit score can be especially difficult during times of economic downturn. With many business owners facing debt and cash flow issues at the moment, it’s never been more important to implement financial strategies to protect your operation’s credit score. Below are some ways to protect your business credit score during this time-

1. Check your business’s credit score

According to research from MYOB and OnDeck, around 93% of Aussie businesses have never checked their credit score, yet this should be your first port of call as a business owner.

Your business credit score is a number between 1 and 1,200. It’s calculated based on a number of factors such as your company’s credit information, number of credit enquiries and time in operation. The higher your score, the more “trustworthy” you appear to lenders.

It’s important to understand where your business is sitting financially. If your score is at the higher end of the spectrum, you can focus on maintaining it. If it isn’t quite up to scratch, identify any factors that may be dragging it down.

2. Free up cash flow

During a recession, it’s important to free up cash wherever possible – every little bit helps. Any extra money saved can be put into an emergency fund or go towards bills and repayments.

Depending on the type and size of your business, below are a few options for boosting your cash flow:

Cut back on spending. This can include things like software, stationery supplies, training or events. You can always reinstate these expenses once things return to normal. Make sure you’re tracking all expenditure so you can account for where your money is going. Business budgeting apps or software can help if you aren’t comfortable managing it on your own.
Negotiate with suppliers. Depending on your contract, you may be able to re-negotiate new payment terms with your existing suppliers or creditors. This can help to lower costs in the short term.
Apply for financing. If your score is already up to scratch and you just want to maintain it, a business loan may be able to tide you over financially and keep things running smoothly.

You might want to check this out 10 key strategies to succeed in business in 2022

3. Assess what you can and can’t pay

Ignoring your bills will only worsen a cash crisis, and may lead to a default on your credit file. If you’re drowning in overdue notices, try to prioritise the most essential payments first. This should typically include tax payments, staff salaries, utility bills and rent.

4. Be proactive about contacting creditors

If you can’t meet your repayments, be upfront with your bank or lender as soon as possible. Procrastinating will not make the situation go away.

Thousands of businesses are having a hard time at the moment, and your lender or credit provider may have additional hardship measures in place. This may include options like payment deferrals, a reduced interest rate or a loan holiday.

If you’re able to negotiate new repayment terms, make sure you’re across any fine print. Will interest still accrue during this time? What happens at the end of your temporary payment deferral? You want to make sure that you’ve covered all bases so you aren’t caught out down the track.

If you’re doing it tough financially, the most important thing is to keep communication lines open. Suppliers, banks and lenders may be more willing to negotiate if they are notified of your situation in advance. By being proactive, you will protect your business relationships, protect your business and ultimately, protect your business credit score.

5. Avoid New Credit Card Purchases

Each credit application you submit is recorded in your file and affects your credit score. Because frequent applications may indicate financial desperation. Purchase of credit card purchases will raise your credit utilisation rate, which accounts for 30% of your credit score and is calculated as the ratio of your credit card balances to their respective credit limits.

It’s recommended to maintain your credit usage percentage below 30%, according to the FICO score model. That instance, if you have a credit card with a $10,000 limit, you should keep a balance of no more than $3,000 on it.

6. Pay off Debt

Have a reminder system so you’re never late with your credit card bill. Even better, set up a direct debit to cover your minimum payment.

Your credit card and loan info is recorded on your report for two years. Payments that are delinquent (even if only by a few days) can have a negative impact on your credit score. It can be beneficial to set reminders if you have trouble remembering which bills are due when.

7. Dispute credit report errors

A mistake on one of your credit reports could be pulling down your score. If you want to complain about the information in your credit report you should contact the relevant credit provider, credit reporting body or other relevant third party. They should generally make a decision about the complaint within 30 days.

Get a copy of your credit file and see if there’s an area you need to address. The credit reporting bodies we use are:

illion (formerly trading as Dun & Bradstreet Australia),
Equifax (previously known as Veda)

If they don’t respond to the complaint, or you’re not satisfied with their response, you may complain to the relevant External dispute resolution (EDR) scheme.

You’re entitled by law to get one free credit report every 12 months, or within 90 days of receiving a credit rejection. For a small fee you can request a report at any time.

8. Use a secured credit card

A secured credit card is another option for building or rebuilding credit. This sort of card is secured by a cash deposit, which you pay in advance and is usually equal to your credit limit. You use it just like a regular credit card, and timely payments help you build credit.

Look for a secured card that reports your credit activity to all three major credit bureaus. You may also consider looking into alternative credit cards that don’t require a security deposit.

9. Add to your credit mix

An additional credit account in good standing may help your credit, particularly if it is a type of credit you don’t already have.

If you have only credit cards, consider getting a loan; a credit-builder loan can be a low-cost option. Check that the loan you’re considering adding reports to all three credit bureaus.

If you’re able to successfully manage several debts – say a car loan, a credit card, a mortgage – your credit score will rise

10. Become an Authorized User

Becoming an authorized user on someone else’s credit card account can improve your credit score. When you are an authorized user of a credit account, the account’s payment history appears on your credit report. If that payment history is positive, this could raise your credit score.

However, this strategy can backfire if the account holder doesn’t pay their bills on time.

*Please note, this is general advice. We are not licenced to provide financial advise. Please ensure you speak to your financial advisor before making any financial decisions.

Considering finance but unsure where to start? Give our team a call on 1300 760 930 or click Get Started. We’re here to talk through your needs and help you access funds in as little as 24 hours.

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