Business Credit Basics and 5 Ways to Build Yours

Your personal credit is not the same as your business credit, but the former can greatly effect the latter for better or for worse. If you have poor personal credit, you may only qualify for higher interest rates on your business loans, above-average insurance premiums and less favorable terms with suppliers. Almost half of business owners who are denied funding are turned down because of their credit score.¹

Even if you don’t need funding or better rates, improving your business credit can be beneficial to your brand. Unlike personal credit scores, business credit scores are considered public information and are accessible by potential customers. When you have solid business credit, anyone that accesses your score can see you are a trustworthy and credible business.

If you have poor personal credit, it does not mean you can’t get the funding you need for your business. Business credit can be built up independently of your own personal credit, and it can be done so in a way that helps you get the best score possible for your situation. So how are scores calculated? And what does your score mean? Here are a few need-to-know basics before we get started:

Now that you know what goes into your business credit, it’s time to get started! Improve your financial integrity and decrease the cost of your credit-based expenses with these five strategies.

Check your credit report for inaccuracies.

The first step to building up your business credit is to see where you’re starting from, as well as ensuring that it is correct to begin with! Inaccuracies can occur anywhere on your report, so take the time to comb through section by section to confirm that all of the information is correct. If you find inaccuracies, file a grievance with a credit bureau to get it resolved.

Target companies who report trade information and prioritize them for business endeavors.

No all businesses report trades. If you are paying them on time and maintaining a good relationship, that’s wonderful, but it has zero effect on your business credit. Choose businesses that report their trades so that all your diligence pays off.

Pay your lenders on time or early.

Similar to personal credit scores, late or missing payments are big dings to your credit and are difficult to recover from. Never be caught making a payment too late, and be sure to make them early when you can (just in case!).

Start establishing your business credit ASAP.

The maturity of your business credit is a factor that business owners commonly overlook. Similarly to personal credit, a longer credit history tends shows commitment and consistency over time. Start out small with a company credit card and always pay off the minimum to avoid rolling debt. It’s also good to note here that credit utilization is a factor in your business credit, and it is best to keep your balances to 20% – 30% of your credit limit.¹

Keep your personal credit score clean.

Until your business credit is well established, many lenders or businesses will look to your personal credit history as an alternative test of your integrity. Request a report from a credit bureau (you are entitled to one free report a year) and start making the necessary changes to get your credit to a good place.

References

¹Nykiel, T. (December 1, 2015). How to build business credit in 5 steps. Retrieved August 25, 2016, from https://www.nerdwallet.com/blog/small-business/how-to-build-business-credit-small-business-loans/

²Expierian. (n.d.). How to build business credit & improve credit rating. Retrieved August 26, 2016, from http://www.experian.com/small-business/build-business-credit.jsp

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