How to Build Your Business’s Credit Score

Posted by: Gustavo Abarca Jerez on March 9, 2017 — GET FREE UPDATES OF NEW POSTS HERE

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Achieving a favorable business credit score should be every employer’s objective. Good business credit enables you to obtain capital to fuel growth. It also serves as a safety net in times of crisis because it’s easier to borrow money and keep your company afloat. How exactly do you go about building your business’s credit score?

 

Start with Your Personal Credit

Many banks and lending institutions will examine a business owner’s personal credit rating when deciding whether or not to lend money. According to Ami Kassar, co-founder and chief executive of MultiFunding LLC, “They typically look for a personal credit score of at least the mid-600s. Lenders will also often check the personal credit of any investor or business partner with more than a 20% stake in the business,” Kassar says.

The logic is that if a business owner has a solid personal credit score, they’re more likely to be low risk for late payments. So be sure to:

  • Pay your bills and credit cards on time
  • Keep low balances on your credit cards (under 30 percent of your limit)
  • Pay off debt rather than simply “moving it around”

 

Keep Your Business Info Up-To-Date

A business credit score is different than a personal credit score. Rather than following a systematic procedure to create a standardized score like personal credit, a business credit score is typically generated by three primary credit bureaus — Experian, Equifax and Dun & Bradstreet.

You never know for sure which credit bureau a potential lender will check, so it’s important to keep your business info current with all three. For instance, you might need to update how many years you’ve been in business, the number of employees you have and so on. This article from NerdWallet provides information on which factors each credit bureau uses to calculate a business credit score and where you can find them.

 

Establish Business Credit

Most small businesses must have existed for at least two years before banks feel comfortable enough to give them a significant line of credit. So what if you’re a new startup?

One way to quickly build your credit is to apply for a business credit card. Even if it only has a small credit limit, this is an effective way to establish credit and raise your business credit score. You may also want to get lines of credit from vendors and suppliers. Something as small as a $1,000 line of credit that’s promptly paid back in full can be beneficial.

If you ever get a small business loan, make sure that you go through a lender that reports to a business credit bureau. This will make it much easier to establish credit.

 

Make Payments On Time or Early

Just as when paying back personal debt, you should always be on time 100 percent of the time. Better yet, get in the habit of making payments early. In fact, credit bureaus like Dun & Bradstreet only give perfect scores to those who pay well in advance of the deadline.

A good business credit score is your ticket to obtaining small business loans, business credit cards and other forms of financial backing. It can also help you negotiate more favorable interest rates and repayment terms. All of these factors will ultimately contribute to the health and long-term growth of your business.