5 Reasons Why Is Not Getting You The Credit You Want

5 Reasons Why Is Not Getting You The Credit You Want

When you are requesting for an increase in your credit limit or applying for a new credit line for your business, creditors, lenders and suppliers are interested to know how your company has been handling its previous credit obligations. This credit history helps them determine whether to approve your request as well as the terms they will offer.

Your business credit score is used by lenders to assess the riskiness of your company. This score is calculated based on the information contained in your company’s credit report. In most cases, a higher business credit score will mean you’re a lower risk to lenders, hence deserve more credit at better terms. But this is not always the case. Here are five things that could prevent your business from acquiring the credit it needs:

  1. An Incomplete or weak business credit profile. A company’s report and demographics play a crucial role in how potential creditors assess creditworthiness. A business that has issues such as outdated registrations, high-risk industry classification codes, and poor financials can result in unfavourable credit terms or denial of credit. It’s, therefore, vital to ensure your company’s financials, registrations, documents, and filings are up to date, complete and accurate.
  1. Negative or limited payment history. Your payment history demonstrates to creditors and lenders how well your company is able to handle both its past and current credit obligations. A company with negative or limited payment history will face difficulties when trying to access credit.

Aside from paying your invoices promptly, you will also need to keep credit usage consistent. Regular purchases coupled with timely payments help you create a positive payment history; what lenders want to see.

  1. Low credit limits. Having low credit limits across your accounts plainly demonstrates that your business has a limited credit capacity. A business with high credit limits, however, shows that it is capable of handling large credit obligations. As a result, larger credit limit recommendations will be given to the business, especially for cases where the company’s revolving debts are low. So if your company has already established a positive payment history with a creditor or supplier, you should ask for a credit limit increase as it will help boost your business’ overall credit limit.
  1. High credit utilisation ratio. While a high credit limit shows the amount lenders are willing to extend your business, the credit utilisation ratio shows how well your business is managing it. A high credit utilisation ratio increases the riskiness of a company.

Make sure you maintain your ratio at or below 50% to avoid falling into the high-risk category. Low credit utilisation demonstrates your businesses ability to handle its credit obligations, so keeping it low benefits you when you’re applying for credit.

  1. Limited credit diversity. The trade lines reporting on your business also play an important role in credit accessibility. A limited credit diversity may lock your company out of some types of funding. Having instalment loans, open accounts, short-term financing and revolving accounts shows creditors that your company is capable of managing different types of credit effectively.

While your business credit score might determine whether or not you qualify for credit, it is the above factors that help the lender, creditor or supplier to determine the credit limit for your business.

Category Business

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