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Five Ways to Fix Bad Credit for Your Small Business

Credit score is a primary concern among small enterprises. Regardless of how hard you work to keep your books straight, there will always be bills to pay, suppliers to please, and loans to clear. The longer a debt remains overdue, the worse its impact on your credit score.

Bad credit typically becomes an issue when you need a loan or line of credit, and are either charged higher than usual or denied funding altogether. For the best chance at long-term success, therefore, every merchant should work towards maintaining a favorable credit score.

If your business has been suffering from the effects of bad credit, the tips below will help you rebuild your score.

  1. Settle debts on time

As per the Better Business Bureau (BBB), your debt payment history accounts for more than one-third of your credit score. Every unpaid bill or short-term loan at the end of the month will add new negative information to your credit report. It’s therefore important to deal with business debts head-on.

If you have bills in collections, contact your agency and make a payment plan. You could also consider taking out an alternative business loan to pay overdue debts. The best way to build credit is to establish a reputation of clearing bills on time.

  1. Open a new credit account

Many business owners have bad credit because of credit cards and are therefore reluctant to open new accounts and suffer the same fate all over again. However, using credit wisely is the quickest and most effective way to rebuild your score.

Getting a new credit account with bad credit can be challenging, but it’s not impossible. A high-risk company like First American Merchant can set you up with a new account and a line of credit, even when your business has a low credit score. Once you have your account, work hard to pay it off every month. Each payment will contribute positively to your score.

  1. Talk to your creditors

Small businesses often end up in a financial hole because of justifiable reasons like low-season slowdowns, new business regulations, and economic shifts. If you find yourself struggling with accounts payable, don’t hang your coat and boots. Inform creditors of your situation and let them know you’re working tirelessly to pay down your bills. Some may be willing to listen and work out a payment plan, without raising a red flag to credit-reporting bureaus.

  1. Build trade credit

Another easy way to build credit is by establishing credit with vendors and regularly clearing the invoices on time. If the suppliers report their trading information to credit-reporting agencies, they can help you nurture a better business credit score.

  1. Change your habits

Unhealthy practices like over-leveraging your enterprise, buying excess inventory and not having a proper payment plan will quickly drive your credit score to the ground. Establish a financial system that keeps your purchasing habits within your budget, so that you only buy what you can pay on time. Similarly, if you apply for a loan, make sure you can afford to remit timely installments every month. These good practices will keep your score high for the long-run.