Your credit score is used primarily to tell companies how likely you are to pay your bills. For trucking owner-operators and small fleet owners, this number can be very important and have a direct impact on your bottom line. Improving your businesses credit score takes a lot of time and effort, consequently, it can be helpful to be aware of things that have an impact on your score before it is too late. Here are five things that can impact your businesses credit score.
Credit cards
The key with credit cards is to find the right balance because as with all things in life, too much of a good thing can have unfavorable consequences. Using them too much, too little and not having any can all negatively impact your businesses credit score. When looking to establish your credit rating the credit agencies factor in how much of your available credit you are using and the right mix seems to be to stay below 30% of your available credit. The reason is they look at this as an indication of how stretched your finances are and how availability impacts your ability to keep up with your bills.
Industry
The industry your business is in has an impact on your business credit. Included with your report is the NAICS Code for your industry, which dictates how the perception of your industry will impact your score. Common codes for trucking companies include NAICS Code 484121 for General Freight Trucking, Long-Distance, Truckload and NAICS Code 484230 – Specialized Freight (except Used Goods) Trucking, Long-Distance. Unfortunately, there is little that can be done to help with this credit factor. However, it is important to check your report and make sure the correct code for your industry is included.
It is our experience that the trucking industry overall is seen as a riskier industry than some other industries which translates to lower credit scores. This could be because there is a relatively low cost to get started as a trucking business. Also, maintenance and equipment costs can be very high having a big impact on your cash flow and ability to pay your bills.
Your personal credit
For owner-operators and small trucking company owners, your personal credit score can play a role in the credit score of your business in certain instances and be a factor in obtaining certain types of loans and working capital assistance. For example the FICO Small Business Credit Score factors in the business owners personal credit history. Therefore, it is important to not only take steps to improve your business’s credit score but to improve your personal credit score as well.
If you find you are applying for a loan and your personal credit history is bringing down your score, you might want to consider alternative options. One option is freight bill factoring, which takes a look at your shippers and brokers credit scores instead of your businesses or your personal credit.
Paying late by even one day
Since your business’s credit score primarily looks at your likelihood to pay your bills, it should be obvious that your payment history would be a key factor. Given payment history is the number one factor in your score, make sure you read the terms of payments for your expenses very carefully to ensure you are making payments before they are due.
Errors on your credit report
More errors are made on business credit reports than on personal credit reports. The reasons vary, but could include that there are companies in different states with similar names, or your company information has changed, and the reporting agency does not have the most current information. Ensure you are not being penalized for something you have nothing to do with. Again, review your business credit report and ensure everything listed is for your business and that all business information is correct and up to date.
Where do you go from here?
These are a few of the things which can impact your business credit that you may not realize. Some may be more beneficial to your company than others, but all should be considered if you are worried about your business credit score.
