How Can Small Businesses Overcome Obstacles to Building Credit?

Small, newly formed companies have their work cut out for them in establishing and building credit. Here are some tips that can help you get your business’ credit moving back in the right direction.

Build Contingencies into Your Budget

Staying solvent is extremely difficult for businesses in their early days. They don’t have a lot of resources to work with because they haven’t generated a ton of revenue yet. Furthermore, it can be hard to gauge expenses with accuracy. There’s bound to be a fair amount of trial and error as new enterprises find their footing. Consequently, it’s easy to get off track with credit-building goals.

Be conscientious about forecasting and managing overhead expenses as you’re starting. Try to structure some contingencies into your operating budget. With a little extra breathing room, you’ll be better equipped to handle unforeseen costs without major hardship or damage to your business credit score.

Make Timely Payments

Every tradeline on your company’s credit report is going to factor into credit reporting bureaus’ calculation of your credit score. Late payments will negatively impact the calculation, and having accounts in collections will drag your score down even further.

Avoid making late payments by sticking to a fixed schedule with all of your recurring expenses. Refrain from nonessential expenditures if buying something new for your company could jeopardize your ability to stay current with outstanding obligations.

Rein In Credit Utilization

Even if you pay all of your creditors on time month after month, using too much of your available credit at once may thwart your efforts to bolster business credit. In general, you should keep your credit utilization under thirty percent.

Use thirty percent or less of your available credit on individual cards and other lines of credit. Also, keep your utilization of the total of all of your credit limits on different trade lines within this same range.

There’s a great shortcut to improving your credit utilization ratio that you should consider. Request an increase on your credit limit from credit card companies and other financiers. This will increase your total available credit but don’t use the additional amount. Keep your usage at or below your current levels, and you’ll have a lower credit utilization ratio.

Lastly, make it a point to check in on your score frequently. It may be advantageous to sign up for alerts so you can learn about changes to your score and track your progress.