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Why a Good Credit Rating Can Make or Break Your Business

There are a lot of things to be mindful about when you are starting or trying to maintain a business. One of the most crucial parts of staying in business is to retain a good credit rating. Credit ratings are essential to a business as they tell potential shareholders and banks that the company is worthy investing in and will be able to pay back any bank loan they had taken.

Like for individual credit score reports, credit rating agencies generate credit ratings for businesses, but these are tabulated by factoring several aspects of the company’s financial activities. They include payment histories, age of credit history, debt and debt usage, industry risk and company size.

Maintaining a good credit standing may sound like a simple task, however, it attracts a great deal of negativity if the scores are low. Professionally your business will be deemed unreliable, and it will deter shareholders and essential parties from initiating collaboration or continuing relationship with your business, which makes building back the reputation all the harder once the rating lowers.

Here are some ways to make sure the credit rating remains good.

Pay your bills on time


First things first. There is no easy way to keep the ratings high. It’s a process that takes regular monitoring to achieve a high credit rating and it starts with paying bills promptly or in advance while keeping a detailed record of each transaction. Aside from submitting data to the credit rating agencies to monitor the business financial activities, internally there should be a set of eyes keeping detailed notes on debit and credit. If there’s any complication that presents itself or in the event credit rating agencies tabulated the wrong numbers that result in low ratings, you will be able to catch it instantly and submit the necessary information for a review of the ratings.

Aside from keeping records, know exactly when your payments are due and make them in advance if possible to avoid any blemish to the credit report, and if necessary set notifications or auto-pay instructions for payments so that late payments wouldn’t hurt the business credit rating.

Maintain a healthy debt to credit ratio

When applying for a bank loan or placing things for a mortgage, one of the most important pieces of information that will help banks decide if the business can make the payments on time is the Debt to Credit Ratio. The Debt to Credit Ratio helps banks see if you and your business are trustworthy. To maintain that, you have to keep track of the list of debts and divide it into the profit being made to see if the ratio is lower or higher. The lower the ratio, the better the credit rating will be.

Set a limit to your credit usage


Setting financial limits for company expenditure is imperative to get a good business credit rating. These include business expenditure such as networking, traveling, capacity expansion, hiring personnel to take charge of the business and so forth. That said, factor in the cash flow and set a limit instead so that the expenses for business won’t be something the company can’t handle monthly, which will result in falling back on payments. Some of the steps that you can take to set up restrictions include reducing the limit on credit cards to the lowest amount deemed appropriate. This will help you be aware of the charges being made and get notified if the usage goes over the limit.

Control the amount of loan being utilised

Whenever a company applies for a bank loan, it does so at the risk of the ratings getting lower. With that in mind, it is wise to refrain from utilising the total bank loan funds all at once. Instead try to assert a limit in order to have control of the flow of money getting in and out of the account.

Avoid multiple credit cards or loan applications in a short period of time

All expenses may seem like a necessary investment for the future. You have to keep a keen eye on the cash flow that is flowing in and out of the business so that there won’t be any need for frequent loan applications. Instead try using a business credit card for everyday purchases for the company, such as groceries, supplies, utility payments or travel.

A business credit card wouldn’t make a huge mark on the rating, as long as you make the minimum payment on time. However, do not apply for multiple cards at once. It will result in exhausting your funds and you will hit bankruptcy quicker.

Avoid becoming bankrupt and having derogatory remarks on the credit report

Sometimes it's the fault of the season that businesses are brought down to bankruptcy. But once bankruptcy hits the credit rating will drop as well. In an effort to remedy that, there should be an allocation of fund for emergency purposes, either to cover the losses or to make timely payments.

In conclusion, credit ratings are the first thing potential buyers and clients will look at as the face of the company. A great deal of importance should be given to it to make a good impression in the market; it is always a good idea to go through your business credit ratings with your own eyes and keep tabs on it because your livelihood depends on it. If any error or discrepancy should occur you will be the only one who will be able to see it and report it. It helps to sign up for alerts that will notify you of any changes to the credit records so the necessary actions can be taken to rectify the problems.