I’m sure you’ve heard about building personal credit and making sure you maintain a healthy score. But did you know that you can build your business credit too? What, you didn’t know? Well, let me explain. The great thing about understanding a business score is that it’s not much different from a personal credit score. Business credit is the potential for a business to qualify for a loan (just as you would for a car or house). Here are a few tips for building business credit:
1). Check whether you have business credit
If you didn’t know, just as you have a personal credit score, your business can also have its own score. If you are unsure whether your business has credit, here’s how you can find out: Contact the three major credit bureaus (Dun & Bradstreet, Equifax, and Experian) for info on your business credit. They’ll give you information on your credit report which you can then check the history of your business transactions
2). Build business credit
Building business credit is not much different than building personal credit. One way to start would be to open a business credit card. Having a business credit card is a great way to build trustworthiness with banks and in turn can lead to banks loaning you cash for any investments towards the business. Remember, just because you have something doesn’t mean you should utilize all of it. The same rules that apply with a personal credit card apply with a business credit card. You should aim to use a maximum of 30% of whatever capital you are given. Be diligent with your expenses.
- Form an LLC
Forming an LLC not only serves the purpose of legitimizing your business, it also protects you as the owner from any legal actions formed against your business.
- Obtain your Employer Identification Number (EIN).
An EIN is seen as a Social Security number for a business. This is your Business’ identity. The reason for obtaining and EIN is to be able to open a bank account for your business and perform actions such as tax write-offs. Having an EIN establishes the credibility of your business. This also protects the business owner in the event the business is sued. Because the business is a separate entity, the state of your personal belongings aren’t jeopardized. Only what belongs to the business is at risk.
- Open a separate bank account: Opening a separate account for your business is highly suggested so that your income from your business is distinguishable from your personal income.
4). Take advantage of your business credit
Even better than having business credit is the fact that you can use it to your advantage. Having good credit puts you in a position to receive lower rates. This in turn leaves you with more available cash that you can use for other immediate expenses. This is how you put your credit to good use.
5). Pay your bills on time
We constantly emphasize how important it is to make sure your bills are paid on time not because we like repeating the same statement over and over. It’s because banks want their money when they expect it, not when you can afford to pay them back. Think about it. If you lent a friend or relative some cash and expected to be paid back on a certain date but you haven’t heard from that person since the time you lent them the cash, wouldn’t you have less trust in that person? That’s how banks think. When they lend you money they expect to be paid on a certain date. And if you can’t hold your end of the bargain then there’s no longer enough trust to lend you any more money.
6). Actively Watch your report
In today’s world, fraud is prevalent. The last thing you want is to be a victim of it. Be sure you are constantly monitoring your credit report for suspicious activity. This will protect the longevity of your business. There are many companies out there you can use as a service to monitor your credit activity for you. If this is the investment you need to make, don’t hesitate.