Credit ratings are driven by a number of factors, the algorithms behind credit ratings are constantly moving and adapting to risk, however there are a few key factors which have remained steady. They are also factors that you can have some influence over.
Here are some easy tips to improving your company credit rating.
Borrow When You Don’t Need To
Many companies operate with minimal credit, either they have not needed it or have simply managed to get by without it. The thing is that track record is important. Even if you have no intention of using any business finance facility it can still benefit you.
Without wishing to encourage unnecessary debt, if you are offered a business credit card but don’t need it then take it, put it on full repayment direct debit and use it every now and again. This simply helps show you as a business that repays it’s debts on time, it also has a major influence over limit utilisation…
This is all about how much of the funding you have available you actually use. If you have an overdraft limit of £10,000 but only ever go up to £1,000 overdrawn then your maximum limit utilisation is 10%. If you have the same limit but regularly go up to £9,500 overdrawn then you have a 95% limit utilisation.
The higher the utilisation level the more reliant your company is seen on credit, therefore when you ask for more then it is instantly seen as higher risk.
If you are using cash flow finance, such as overdraft or credit/charge cards then consider what limit is appropriate. Don’t pitch the limit you want at the level that will suffice, pitch it higher and apply at a time when you are not in real need of the finance.
This means you are more likely to be approved and will be reducing your limit utilisation without actually doing too much different. If you are doing this then make sure you monitor what is happening…
Keep an eye on your company credit rating. These days it is a relatively easy thing to do (if not sure how then please ask us) and it can reap benefits.
Credit ratings are driven by borrowing performance as mentioned above, but also by payment history. Keep an eye on your credit report, look at your payment history and challenge where this does not look correct. If you pay within your agreed terms then it should all be OK, but there is some bad information out there which unless spotted by you can find it’s way onto your company’s credit report.
Most good firms that offer credit to their customers will use a system to credit check them, the simple answer is to add your own company to this system, if you don’t have this facility available then give us a shout and we will recommend something to you.
By Dave Farmer
Dave Farmer is founder of the award winning Lime Consultancy. We always try to blog on popular and relevant topics, we also value your feedback so please do add comments above or drop us a line.