6 Ways to Improve Your Business Credit History

Businesses need a constant flow of finances to keep their businesses up and running. In most cases, they seek the help of banks, financial institutions, individual money lenders and fintech companies (new players in the market) for short-term and long-term loans.

If you approach one of these lenders for finances, you should have a good credit history to be eligible for the loan amount you are looking for. Your credit history will determine if you can repay the loans. Lenders prefer borrowers with a good credit score, as this helps them stay away from defaulters.

If you are looking for funds to grow/expand your business, you should first work on improving your credit history. This will ease your access to loans at attractive rates. Here are some of the top 6 ways you can try to improve your creditworthiness.

1. Timely Payments

This might seem like a simple tip; however, this is one of the best ways to improve your business credit history. Set up reminders, maintain a direct debit system, or keep a record so that you don’t miss any payments.

When you default on your payments, it can impact your credit history to a great extent. These payments could be credit card payments, monthly loan repayments, or any other payment. When you fail to pay within the due date, banks may charge penalties or late fees. Thus, you may end up paying more than the actual due, creating a lot of debt for you in the bargain.

2. Avoid closure of old credit cards or accounts

Don’t close your old credit card or account, even if you have paid off the debt fully. The older your credit card/account, the more reliable you are. When lenders check your credit history at the time of sanctioning a loan, they will review your existing credit cards and account status.

When you cancel your credit card/ bank account, you will get rid of your credit history as well. Hence, these cannot be taken into account when calculating your credit score. If you want to manage your multiple cards/accounts efficiently, you can consider closing a recent card/account than an older one. Your old cards/accounts denote your stability and your potential to make payments on time.

3. Keep a close watch on your credit – business and personal

You should always keep your business and personal accounts separate for better financial management. This way, you can manage your credit efficiently. In most cases, lenders look into the personal financial details of borrowers when sanctioning a business loan. 

When you maintain both personal and official credits separately, you can track your financial habits and their impact on your credit balance. Paying business expenses from a designated account, using a professional business ID for paying taxes, etc. are some good habits you can follow to maintain a good business and personal credit score.

4. Keep your credit balances low

Your credit utilisation capacity has a big role in impacting your credit score. Ideally, your credit utilisation capacity should not exceed 30%. For example, if your business is eligible for an overdraft facility of Rs.10 lakhs, you should not withdraw more than 30% of the same, which is Rs.3 lakhs.

Even when your credit utilisation is within the 30% range, you should ensure you make the repayments on time, and try your best to close off the loan as quickly as possible. When your credit utilisation is more than 30%, it can adversely impact your credit history and creditworthiness. So, it is a good idea to keep your credit balances (both professional and personal) as low as possible.

5. Follow up with vendors to report payments

The strength of your business depends on the quality of your vendors/suppliers. Though these vendors don’t need to furnish a credit history mandatorily, you can request them to furnish one regularly. When lenders do a background check on you, they can go through these credit history reports and understand the high quality of the vendors you deal with daily. 

This gives your business a huge boost. Eventually, it helps to improve your credit history as well. You can request your vendors to furnish a proper credit history report from time to time to show you have made all the necessary payments on time.

6. Check your credit score regularly to watch out for errors, if any, and fix them

It is a good idea to check your business credit history at regular intervals. This way, you can review your financial data there to spot discrepancies, if any. If any of your payments have been missed out, wrongly recorded as late payment, or entry of incorrect mobile number and other details, you can fix them immediately and get your credit score sorted.

Bottom Line

In conclusion, maintaining a strong business credit score is crucial for securing better financing options and ensuring long-term growth. TallyCapital not only provides flexible business loans tailored to your needs but also empowers you to keep a close watch on your financial health. With the option to access your credit score report for free 11 times a year, you can stay informed and take proactive steps toward improving your creditworthiness. Take charge of your financial future with TallyCapital and unlock new possibilities for your business!