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small business owners try to improve credit score with a line of credit

Dos And Don’ts To Improve Your Credit Score While Using A Line Of Credit

A healthy credit score can provide business owners with better interest rates, higher chances of loan approval, and more favourable terms from lenders. One way to manage and potentially improve your credit score is by using a line of credit responsibly and strategically. 

A line of credit allows a borrower to withdraw money from an account up to a limit. Once it is repaid, the borrower can resume withdrawing.

However, there are certain things to keep in mind if you want to improve your credit rating. This quick read will outline a few dos and don’ts for improving your credit score.

Dos To Improve Credit Score

Before discussing the Dos, let’s quickly define why you’d need to improve your credit score. It would typically be due to bad credit, which implies a history of not paying bills on time.

Credit bureaus use your credit history to create a profile about you. This profile is typically used to assess the amount of risk lenders will take on by providing you with credit.

To improve your credit score with a line of credit, borrow what you can afford, always pay bills on time, regularly check your credit rating, and use a mix of credit types wisely.

Take Out Only What You Can Afford 

The first way to improve your credit score is to ensure you draw down the amount of money that is suitable for your business’s financial situation. 

Consider only borrowing what you can comfortably afford to repay (at least the minimum payment required) within a reasonable timeframe.

This can help you avoid overspending the extra funds and decrease the likelihood of missed payments.

By borrowing wisely, you will potentially be able to repay on time, demonstrating that you’re a responsible borrower.

Aim to build a positive repayment history by making timely repayments to improve your credit rating.

Fully Pay Off Bills On Time

Late or missed payments can have a negative impact on credit reports, and your payment history is a critical component of your credit score.

To this end, business owners may want to consider making bill payments in full at all times, and paying promptly. Timely payments can indicate to credit providers that you’re a responsible borrower.

If you want to improve your credit score, you may want to try the following methods:

  • Set up reminders for the due date
  • Automate loan repayments through your bank account

You can also do this to avoid late payments on your utility bills and other dues.

On-time payments can also help business owners avoid late fees that can strain their cash flow.

Review Your Credit Rating Regularly

Business owners can obtain a free credit report annually from credit reporting agencies like Experian, Equifax, or Illion at least once a year.

Reviewing credit report can help small business owners identify any discrepancies that could potentially result in a bad credit score.

If you find any errors, you can typically contact the credit reporting agency to get your business’s details corrected. Any issues spotted may be due to identity theft or errors on the part of a credit provider.

Many banks, credit card companies, and some credit reporting bodies typically offer free credit score monitoring tools.

You may want to use these tools to stay informed of your financial situation and promptly address any potential issues.

Properly Utilise A Mix Of Credit Types

A diverse mix of credit accounts, such as different business credit cards and lines of credit, can also help improve credit score.

This diversity is known as credit mix and is typically considered a positive indicator by credit reporting bureaus.

Effective management across different types of credit can demonstrate to credit providers your reliability in handling multiple types of loans.

However, business owners will usually only want to take on debt that they can afford to repay.

Don’ts To Improve Credit Score

Avoiding the “Don’ts” can potentially protect your credit report from any bad records. Unpaid taxes, multiple credit applications, and excessive debt can all send red flags to lenders.

By knowing what to avoid, you can proactively protect your credit history from any negative marks.

Leave Outstanding Tax Debts Unpaid

Ignoring your tax obligations can lead to severe penalties. A lower credit score may cause small business owners to pay higher interest rates when taking out loans.

Any unpaid debt to the Australian Taxation Office (ATO) is particularly detrimental because it can lead to court judgments.

Negative information will usually stay on your credit file for a significant period.

Business owners may consider seeking professional advice from a tax advisor or a credit repair company for the effective resolution of any outstanding tax liabilities.

They may also be able to help business owners create an optimal payment plan.

Sustain Multiple Hard Credit Inquiries In The Same Period

Hard inquiries occur when you apply for new sources of credit. These inquiries are recorded on your credit report.

So, every time you borrow money or apply for a loan or credit card, you sustain a hard inquiry on your credit report.

While each hard inquiry might slightly reduce your credit rating, accumulating several can create a more substantial drop or decrease the average age of your accounts.

This can make it more challenging to secure favourable interest charges or new credit lines in the future.

To avoid this, try to plan your credit applications strategically and only seek new credit when necessary.

Take On Too Much Debt In A Short Period

Lines of credit can offer businesses flexibility but don’t get carried away.

Excessive debt can lead to a high credit utilisation ratio and negatively impact credit scores.

You can counter this by creating a budget for saving money and paying bills. Then, stick to it to avoid overextending yourself financially.

Regularly paying off your debt demonstrates your ability to manage your finances. This can be achieved by meeting the minimum repayments by the due date of each month.


Building credit is a long-term investment, but good credit rewards your business’s financial health and can lead to even better growth opportunities.

There are many actions you can take to improve your credit score. After achieving it, it’s important to keep a good credit score.

This way, you’ll usually be able to pay bills on time and secure your business’s financing.

Following these dos and don’ts lays the groundwork for securing optimal loan terms if you need to sustain growth with additional funds.

Small businesses who are ready to keep growing can consider taking out a loan from Lumi today.

We’re proud to have the best Business Line Of Credit in the market. This revolving, low-fee finance solution offers small business owners full flexibility at zero risk, helping you make strategic investments while managing your cash flow effectively. 

If you’re ready to apply for a Business Line Of Credit, click here.

Got more questions? Get in touch with our friendly team via phone at 1300 005 864 or email sales@lumi.com.au.

Disclaimer: We try our best to fact-check all information and keep it up-to-date, but this can not always be guaranteed. All of the information shared is for general use only and should not be considered personalised financial advice. Make sure to consult an accredited accountant and/or tax agent for personalised advice on matters related to your business’s or personal finance.

Post Author: Sally Le

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