Is your business credit worthy? Do you have a business credit score? If not, how can you build your business credit quickly and easily? Small business owner? Still running your business under your own name?
If you’re still running your small business as a sole proprietorship, or even a partnership, you probably already know that you need to separate your business and personal finances as much as possible. But even those of us who have already separated the two often forget to start building our business credit score until we really need it, and by then, it’s usually too late. As a result, we end up paying more for goods and services than we need to simply because we didn’t plan ahead.
Building your business credit score early on can eliminate the inconvenience and the extra cost associated with having to comingle your business and personal credit when you really need it. Just like your personal credit score, building a business credit score takes time and effort, but it is an effort that will pay off later on.
Here are a few tips for building your business credit worthiness:
1. Incorporate your business! By incorporating your business, you legally separate your business and personal credit profile. This protects you from personal liability for the actions of the corporation, as well as from the corporation’s debt obligations.
2. Obtain an employer identification number (EIN). A business’ EIN number is essentially it’s social security number, and you’ll need it to incorporate the business, apply for any business loans, credit cards, or vendor accounts, open a business checking account, and file the tax returns.
3. Open a business bank account. Every business needs a business checking account. Not only will you need it to track and handle the business finances, but it’s legally required to separate your personal and business liabilities.
4. Establish business credit with the main credit bureaus. Just like with individual credit, your business credit will be reported to three credit bureaus. Dun & Bradstreet is the most common, so the first thing that you will want to do is to apply for a free DUNS number, then start working on your trade references. Experian and Equifax also track business credit, but the process is more automatic, much like your personal credit score is tracked.
5. Establish a line of credit with vendors. If you want to build your business credit, open a line of credit with companies that report to the business credit bureaus. You should have three to five lines of credit with vendors that report payment information, such as a small business credit card, to establish strong business credit.
6. Make your payments on time, every time. To build business credit, it’s crucial to repay all your creditors and lenders on time. Your payment history with vendors, lenders, and credit issuers is the most important factor when business credit bureaus calculate your business credit score. Similar to your personal credit score, late payments will hurt your business credit score. A low credit score is the leading reason for credit denial. If your credit is damaged, consider opening a secured business credit card to help rebuild your score.
Whether you’re just starting out or you’ve been in business for a while, establishing your business credit score opens the door to many opportunities for growth. Low-interest business loans, favorable payment terms with your suppliers, and so many more benefits await businesses with great credit – just like individuals with great credit!