Why Your Business Credit Score is Not Improving and How to Fix It

Many small businesses and startups rely on small business loans to find their operations. However, procuring the loans takes work for most small businesses looking forward to implementing their ideas with limited resources. Therefore, small businesses have a considerable role in convincing investors to lend them money to fund these ideas. Creditworthiness is one of the most vital things lenders consider when taking any loan. A low credit score means you cannot get a loan to support your ventures. Sometimes you may feel you have made your payments correctly but still struggle with a low credit score. You need to know that a low credit score happens for various reasons, which means you get rejected every time you apply for a loan. A low credit score hinders you from convincing lenders you can pay the loan, even when you are capable. Therefore, the lender cannot risk giving you the loan since they consider you a risky borrower. So, why is your credit score low, and how can you fix that to have more access to business loans? The following are reasons your credit score is low and how you can increase it.

Before we look at these reasons, it is crucial to understand what factors determine the credit score. They include:

  • Credit utilization ratio
  • Payment history
  • Credit history
  • Credit mix
  • Hard inquiry

Your credit score is a combination of these factors. Therefore, they must be in good order if you want to improve your business credit score.

Reasons Why You Have Low Business Credit Score

There are different reasons why your credit score is low. They include:

Delayed Payments

One of the leading causes of a low credit score is delayed payments. You may not have money to repay your monthly payments or have forgotten to pay. Many people need to realize that delayed payments negatively affect your credit score. Therefore, the more you wait to make payments, your credit score and history are lower. Even if you pay later, the details may have already reached the credit bureau, which generates credit scores. Therefore, the best way to keep your credit healthy is to make your payments on time. If you don’t have enough money to cover the expenses, you can consider taking debt consolidation loans to cover credit loans. Debt consolidation loans allow you to repay other loans in a lump sum. This way, you have an extended timeframe to make future payments. So, maintaining a positive repayment track record keeps your credit score healthy.

Missed Payments

Another thing that affects your credit score is missing payments. If you miss paying your EMI or settle your credit card bill, you risk running your credit rating. Sometimes businesses face challenging moments such that paying monthly instalments for their loans becomes impossible. However, missing a payment goes to the credit history and leads to a decline in the credit score. Therefore, ensuring you don’t miss out on your EMIs or credit card bills is vital. A good credit history indicates that you are responsible for financial duties in your business. Therefore, make all payments to avoid missing credit in the future.

Applying for too Many Unnecessary Loans

You might not know this, but most lenders make a hard inquiry from the credit bureau to see the number of loans you have and how you repay them. If you have applied for the same loan with multiple lenders, it could make things worse for you. The more hard inquiries are made, the lower your credit score y gets. Hence, we advise against applying for multiple loans simultaneously. Instead, only apply for it if you have a high chance of getting approved. Repeated application only shows you are desperate for credit, painting a negative picture about you. So, request a loan only when you need it and apply only a few of them.

Poor Credit Balance Utilization

Using your business credit cards also affects your credit rating and score. Lenders call it the credit utilization ratio. It is the ratio of the expenses on the credit card to your card limit. So, the credit limit indicates the maximum limit you can spend. If you maximize spending and keep spending beyond the limit, it demonstrates that you mainly depend on credit to manage expenses. It is vital to limit how much you pay using a credit card. It is best to keep your utilization ratio at 30% or below to prevent defaulting payments which affects your credit score negatively.

Credit Report Error

Your credit report may have errors that can negatively affect your credit score. It can be a misspelled name, a late payment mentioned by mistake, or an identity theft error. Others include double loan reporting, closed loans marked as settled, or wrong credit limits. These errors take a toll on your credit score. Therefore, you must regularly check your credit report and notify the bureau for rectification if you notice an error.

Negative Records

You may pay your bills and EMIs on time and keep your credit utilization ratio low, but your credit score is still declining. A good reason why this could be happening is because of a bad record like bankruptcy. Remember, if you file for bankruptcy, you will need to wait for seven years to start building your credit score. So, such events take time to go away, which means your credit score remains low.  

Closing Old Accounts

You may think those old and unused credit accounts you no longer use for your business transactions lower your credit score. Therefore, you end up closing the accounts hoping to maintain or increase your credit score. You must know that your credit score is purely based on your report. That means how you pay loans, use your credit card balances and apply for loans. Therefore, if you close an old credit account and open a new one, you may realize your credit score has dropped. So, don’t close the accounts to maintain your score.

In Summary

You may realize the benefit of your credit score when you need a loan or a credit card. So, it is essential to keep good credit scores to ensure you can get loans when you need them. If your credit score is low or not improving, the about are the leading causes. Try fixing it with the suggested solution to increase your chances of getting loans for your business.