To run a business, you need money; and generally, to get enough money to set up a business, you’d need a huge investment. Investments generally come from a plethora of sources for business owners, including banks, creditors, financial firms, etc. But the thing that’s important is, no one’s going to provide you with the money on a silver platter unless you have the right pathway to get there.
Credit rating, a term which you might have come across while dealing with such proclivities of business, is pretty important, and if you don’t know already, here’s a slight glimpse into what it really is. In general terms, the credit rating of a company, a person, or an entity would allow for the world to check the credit-worthiness of that borrower with respect to a particular debt or financial obligation.
To quote it simply, if you’re looking to borrow some money to run your business, your credit rating should be top-notch. There are a number of credit rating companies who help rate businesses in terms of their credits, such as Moody’s, etc.
If you’re looking to improve your credit ratings, don’t forget to look at these points:
1. Limit credit usage and keep debt levels on the low
Now, if we begin talking about the procedure as to how Credit Rating agencies deduce and calculate your ratings in terms of credit, we’d need an entirely separate article just for that. But, to help you understand it in an easy fashion, consider the following example:
If you go to the market to loan some money, it is obvious that the firms that you go to, would like to see your past records of debt/credit. To pass through such typical criteria, you need to be sure that your previous debt levels have been. No firm would like to lend you more money, if you already owe money to other firms.
The gist being, limit your credit usage. If you employees have company authorized credit cards, do make sure that the credit usage does not ever exceed the amount you can pay back soon enough. For small businesses, this soon enough doesn’t take more than a few weeks to a few months.
2. Strive to use credit
Have you ever heard of reverse psychology? If you do, then we’re going to give you a view of how you can use it to help increase your credit rating. If not, don’t fret, we have the right way for you too.
If you’re looking to get credit, you need to make sure that your creditors believe in you and have the utmost faith in you.
- “Faith is generally generated by practicing a form of a task, and repeatedly doing it correctly, until the person standing in front of you starts trusting you.” Going by this extremely conventional definition, if you’re willing to increase your credit ratings, you need to get more credit. Unless you already have some credit with you, banks or other financial firms wouldn’t believe that you’d follow in paying them back.
- Tip: Have a strong loan and payback record for your company well in advance. If the financial wizards see your paying back your debt on time, they’d be more than willing to set an eye on an even longer and a bigger shot.
3. Avoid closing accounts
The biggest nightmare for a financial institution, you ask?
People leaving them!
If this wasn’t a no-brainer already, consider the fact that if you’re a business, you wouldn’t want your customers to leave. Same is the case with banks or financial institutions. Closing a business or a personal account shows vulnerability and a lack of loyalty, which in turn affects your credit ratings.
4. Try consolidating your debt
Consolidation allows a person or a business to take a single loan to pay off a number of smaller loans, debts, or bills.
Having a single loan to pay off all other loans may not seem as a completely viable offer, but there are many benefits attached to it.
- It simplifies your finances. Instead of handling a number of debt payments, you’d only be required to answer to a single bank/debt company.
- It saves a lot of money, by reducing the interest rates.
Thus, instead of paying off a hundred different loan amounts, you’d only be required to pay just one. This helps a lot in creating a better image of your firm in front of the Banks. They wouldn’t see you as an entity being in debt from various organizations, but from a single one.
5. Check your business card report every now and then
Many business owners do not know their companies’ credit scores. And if you’re one of those businessmen, you need to start changing your outlook. It should be noted that it is highly important to periodically and regularly monitor your business credit report so as to avoid errors and inaccuracies that may lead to the downfall of your credit score.
6. Hire a debt managing consultancy (Experts)
The elders once said if you don’t know how to get something done, let the experts handle it. Same should be the case with debt management. Debt management is possibly the most important source of improvement in a credit rating matrix. If you’ve got your debt handled well, there’s no room for any trouble.
There are a number of organizations and experts handling and helping firms as well as individuals in getting their credits consolidated. It allows your firm to have a little more perspective in consolidating your debt. Another way of going to an expert is reaching out directly to a bank or a credit union agency. There are separate banks directly doing just that.
7. Correct any prior mistakes
They say that Karma follows your wherever you go, so always keep your sheets neat and tidy! When you’re running a business, there are bound to be mistakes. There have been cases when even the smallest of businesses have committed biggest of mistakes. But the trouble that arises with such businesses, they prefer to cover their tracks instead of correcting their mistakes.
Remember that any mistake you commit, there’ll be people following it, and somewhere, someday, someone would find out the mistake. Always try to fix your errors.
You’d ask, what’s the benefit of doing that?
We’ll tell you. Credit Rating agencies are like piranhas! They’d look deep into anything and everything that your business committed. And if there were an equal number of solutions suggested, debts cleared, and wrongdoings made right, more are the chances for your business to form a better image.
To form the crux of the whole story, we’d say that credit ratings are like the “images” of a company. The better is the image of your brand and company, more is the chance of getting a higher score, and easier would be for you to lend money.