How to Build Business Credit

Your business credit begins to exist the moment you issue or receive a credit from another business. It is denoted as credit trade and it is the principal source in the lending world. Business credit bureaus collect information regarding your business credit transactions and prepare a business credit report using your Federal Tax Identification Number. Establishing a business credit is important because when you apply for any kind of financial aid to expand your business, your lenders will consider your business credit report as a critical parameter to determine whether or not to grant you a loan. Here are some important tips to remember when you are wondering how to build a business credit:

Learn about Business Credit Basics

The chief credit bureaus that collect and provide copies of your business credit are Dun & Bradstreet, Equifax Business, Experian Business and Business Credit USA. One important thing to remember is that unless businesses report transactions to the credit bureaus, no transaction will be recorded. Hence, deal with businesses that will be ready to report the transactions to the bureaus. Business credit score ranges between 0 and 100, with anything above 75 is considered good. There are many factors that determine your credit score. Although paying your bills on time is one of them, it is not the only deciding factor. The history of your credit line, the number of credit inquiries you make and the number of credit accounts opened and closed within a specific period of time contribute significantly to your business credit scores.

Follow a Step-by-Step Approach

Building a business credit is a long process. It cannot be done overnight. Take the necessary steps and wait for good results:

  • Operate your business under a corporation or LLC and apply for a TIN from the IRS. This is because when you run your business under sole proprietorship or partnership, your personal credit and business credit could get mixed up, which is not good. It is always better to keep them separate. When you run your business with your personal credit, you will be liable for all your business debts and in this case, your personal assets will fall under great risk. LLCs, or Corporation, offers liability protection that will help you form a business credit separated from your personal credit profile.
  • Get your company registered with Business credit Bureaus.
  • Stick to the rules of business credit market. Credit bureaus and lenders can go against you if you do not adhere to the rules of business credit market. Some simple issues like not having a separate business phone line, or a proper license for your business, can cause you trouble.
  • Have a well-drafted business plan and financial statements. This will help you impress the credit grantors.
  • Have relationship with credit grantors that do not base their decisions on your personal credit.
  • Manage your finances efficiently and avoid falling into debt which will have a negative effect on your business credit score.
  • Keep your profile active by making payments to the creditors regularly.
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