Understanding the importance of credit utilization for your business credit score
As a business owner, your credit score is an essential component of your financial health. Having a strong business credit score can make a significant difference in securing loans and financing to help grow your business. One of the many factors that can influence your business credit score is credit utilization.
What is credit utilization?
Credit utilization refers to the percentage of available credit you have used. For example, if you have a credit card with a $10,000 limit and have used $5,000, your credit utilization is 50%.
Why does credit utilization matter?
Credit utilization is crucial because it demonstrates your ability to manage your credit responsibly. A high credit utilization ratio can indicate that you may not be able to pay back the credit you've borrowed, which makes you a higher risk for lenders. It's recommended that you keep your credit utilization at or below 30% to maintain a good business credit score.
How to improve your credit utilization
One of the best ways to improve your credit utilization is to pay down outstanding balances. If you have multiple credit accounts, focus on paying off the accounts with the highest balances or highest interest rates first.
Tips for managing your credit utilization
Another way to manage your credit utilization is to request a credit line increase. This can help improve your credit utilization ratio by increasing the amount of available credit you have without having to use it.
Lastly, it's vital to monitor your credit utilization regularly. This can help you identify any potential issues and allow you to make adjustments before they negatively impact your business credit score.