How to Repair Business Credit
Having bad business credit makes it tough to fund your business, decreasing your access to accounts like small business loans and business credit cards. Fortunately, it’s never too late to turn things around.
Here’s a step-by-step guide to show you how to repair business credit as quickly and efficiently as possible.
Get Your Business Credit Reports
You can hire a business credit repair service to help fix your company's credit rating, but DIY credit repair is often the better option. Legitimate business credit repair companies exist, but the industry is known for being more dishonest than most.
The best way to avoid falling victim to a credit repair scam is to avoid hiring credit repair businesses in the first place. Even if you choose one with an honest reputation, they're expensive and don't do anything you can't do for yourself.
To start repairing your credit, request a copy of your business credit report. These contain the information used to calculate your business credit scores and assess your company’s riskiness as a borrower.
That includes its credit history, outstanding tradelines, and some insight into its financial performance.
Though they’re generally designed with creditors in mind, having a copy of each business credit bureau’s report is also beneficial to you as a small business owner. For example, it can help you:
- Determine which aspects of your credit need the most improvement
- Identify any inaccuracies that might be artificially lowering your score
Unfortunately, the benefits consumers receive through the Fair Credit Reporting Act (FCRA), like free annual credit reports, don’t apply to businesses. As a result, you’ll typically have to pay to access your data.
The three main business credit bureaus are Dun & Bradstreet (D&B), Experian Business, and Equifax Business. You can get a copy of each one’s report directly from the credit bureau or a third-party service that lets you monitor business credit.
For example, Nav’s credit monitoring subscription lets you access all three business credit bureau reports for $49.99 per month.
Dispute Any Discrepancies
Once you have copies of your business credit reports, double-check that the information in each of them is accurate. Mistakes are more common than you might think and can significantly impact your creditworthiness.
For example, a creditor could incorrectly report that you made one of your monthly payments late or show that your outstanding balance is higher than it is. Fixing even one of these mistakes can be enough to turn a rejected application into a success.
Having incorrect personal details in your report, like the wrong address or industry classification, isn’t as dangerous to your business credit score, but it’s still worth fixing. Make sure to verify that information too.
If you find anything in your credit reports that you believe to be inaccurate, correct the mistake separately with each bureau.
Unfortunately, because the FCRA doesn’t apply to businesses, this may be more challenging than doing so personally. The right to dispute inaccuracies in your credit report is another one that it only guarantees to consumers.
That said, D&B, Experian, and Equifax all have established channels that let you initiate the process. You can submit disputes through their online portals or by sending an email. Either way, make sure to include evidence that supports your claims.
Pay Off Liens and Judgments
Business credit scores vary more in their scoring criteria than consumer credit scores. However, having negative public filings like liens and judgments in your credit report is always a serious red flag to creditors, no matter which score they use.
Not only do these filings indicate that your business is in financial distress, but they also make it much easier for the related debt collectors to seize what you owe them. That significantly reduces your ability to pay back other creditors.
As a result, you’ll often struggle to obtain new credit accounts with these negative entries in your report. If you want to repair your business credit, paying off any liens and judgments against you should be one of your first priorities.
If you can’t pay off the amount in full, it may be worth attempting to negotiate with your creditor or collector.
It’s important to get whatever agreement you make with them in writing ahead of time as well before sending money over to settle the account.
Pay Down Revolving Accounts
Once you’ve eliminated any liens and judgments against you, focus on paying down the balances on your revolving credit accounts. These include your business credit cards, lines of credit, and extended payment arrangements, such as net 30 accounts.
Reducing the balances on revolving accounts like these will improve your credit utilization ratio.
That equals the amount you owe divided by your account’s credit limit. For example, a business credit card with a $15,000 balance and a $30,000 credit limit gives you a 50% credit utilization ratio.
Generally, you should aim to keep this ratio below 30%. If you can keep it under 10%, that’s even better, though it may be unrealistic for some businesses.
Maintaining a low credit utilization like this shows that you’re not relying on revolving credit too heavily and indicates financial strength.
All that said, you don’t want your utilization to be 0%. If you don’t use your revolving credit accounts at all, you won’t be able to prove that you’re using them responsibly. It won’t hurt your score like a 90% utilization rate would, but it’s still suboptimal.
Note that credit utilization doesn’t impact every business's credit score. For example, Experian’s Intelliscore Plus considers your revolving account balances, but D&B’s PAYDEX score only factors in your payment history.
Make Payments On Time
Throughout the credit repair process, you should prioritize making your minimum monthly payments on time. Never do anything that would cause you to overextend financially and risk making a late payment.
As we’ve established, the scoring factors behind business credit scores vary more significantly than the ones behind consumer credit scores. However, payment timeliness is universal. Paying late will always negatively impact your creditworthiness.
To ensure you make your payments on time, focus on maintaining healthy finances.
Business owners typically fail to meet their obligations because they don’t have enough cash, not because they forget to process a payment. Try to keep enough working capital to cover your debts for at least a few months at a time.
If you are the type to miss a debt payment out of absentmindedness or poor organization, consider automating them. That way, you only need to focus on maintaining an appropriate cash balance.
Keep Old Accounts Open
Another way to boost your business credit scores is to keep your old credit accounts open indefinitely. The length of your business credit history is a factor that many scores consider, such as the Equifax MasterScore.
Like consumer credit, a lengthier history of good behavior is inherently more impressive to creditors. A prospective borrower with a 10-year track record of timely payments is always preferable to one that’s only been paying on time for six months.
In addition to demonstrating reliability, holding old credit accounts proves that your business has survived for a long time. Since many companies fail within their first several years, creditors tend to see older ones as safer bets.
In fact, creditors often have minimum time-in-business requirements on top of their credit score expectations.
These usually range from six months to two years, with traditional financial institutions having higher expectations than vendors and online lenders.
For example, Bank of America requires at least two years of business history before considering you for an unsecured business credit line.
Open New Accounts
Once you fix the bad credit decisions you made in the past, it's time to start building a positive business credit history. To do that, open new accounts and prove you can use them responsibly.
Business credit accounts are known as tradelines. The two primary types available include the following:
- Vendor tradelines: These refer to the accounts you open with other businesses. These companies typically don’t specialize in extending credit but offer extended repayment terms to qualified clients. They often take the form of net 30 accounts.
- Financial tradelines: These accounts are the ones you get from dedicated creditors, such as online lenders and traditional financial institutions. They include small business loans, business credit cards, and revolving lines of credit.
If your business still has poor credit despite addressing your previous mistakes, you’ll probably need to start with vendor tradelines since they’re generally easier to get than financial accounts.
However, if your score has already improved significantly, you may be able to jump directly into applying for financial tradelines.
Leveraging good personal credit can make getting the accounts you want easier, but that often means signing a personal guarantee. In that case, the creditor could pursue your personal assets if you ever default on the business debt.
In addition to accessibility, another critical issue to remember when choosing tradelines is which credit bureaus they report to. Consumer creditors often share their data with each credit reporting agency, but that’s less common in the business world.
As a result, you’ll need to be more careful about selecting creditors that share your account and activities with the bureaus you want to build business credit with. Generally, you should aim for at least three credit accounts with each one.
How eCredable Can Help
eCredable is one of the best services available to small business owners looking to improve their business credit scores. Our Business Lift program lets you transform your business’s recurring payments into tradelines.
For example, you could use eCredable to turn your office’s rent, electric, and telephone bills into three separate tradelines. You can also link unlimited eligible business accounts to the software for no additional cost.
Once you sign up, we’ll report the accounts you’ve selected to Equifax and CreditSafe. In addition to your ongoing payments toward them, we can download and share up to 24 months of payment history for each.
That can help you establish years of business credit history very quickly!
To top it off, we’ll also report your monthly eCredable subscription payments to aforementioned credit bureaus, plus D&B and Experian. That means you can establish tradelines with four business credit bureaus simultaneously.
With no business credit check or personal credit check required, eCredable’s Business Lift is one of the most accessible ways to improve your credit so you can better fund your business. Give it a try today!