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How to Establish Business Credit and Why it’s Essential

October 12, 2017 / Leave a comment / by Beth Kotz
Business Credit.jpg

 

As a business leader, you work tirelessly to ensure that your company is thriving and opportunities for growth remain bright.

This work may involve many things, from working with vendors and customers on the marketing of your products, to controlling production costs by streamlining your organization and negotiating the best possible prices with your suppliers.

Another important thing to consider while you go about your daily business is the importance of your business credit score, and how firmly establishing your company’s commercial credit rating can contribute to your chances for success and growth in the future.

When you run a business, a solid commercial credit score is an essential ingredient of your continued growth and success. Business credit enters into the development of your business at every step, from the beginning when you’ll likely need startup funds, to the business credit accounts that will help support your business during the years of growth and expansion. In this way, building a solid commercial credit score is of vital importance for anyone at the helm of a growing company.

 

What is Your Commercial Credit Score?

Unlike personal credit, which is scored on a scale between 300 and 850, credit bureaus score business or commercial credit on a 0-100 scale with 100 being the top score. When you apply for loans or open a business credit card account under a registered DBA (‘doing business as’) with an employer identification number, your creditors will report information that is both positive and negative with the credit reporting agencies, just as your personal creditors do. The good news is that you can take steps to improve and consolidate your business credit score in ways that are similar to how you would improve your personal credit score.

 

Here are some tips that can help you establish business credit and improve your company’s commercial credit rating:

 

First, how is business credit established?

Instead of tracking your personal financial information, business credit bureaus use your business name, business address and federal tax identification number to compile a credit score that reflects the ability of your company to pay back a financial debt. The financial information that business credit bureaus collect to rate businesses is provided on a voluntary basis by business creditors. Unfortunately, business credit bureau reports are often incomplete or inaccurate – in fact, it isn’t at all unusual for several years of financial transactions to be missing from a credit bureau report. This can dramatically limit your ability to access timely credit at reasonable rates of interest.

 

The primary credit bureaus that compile commercial financial transactions include:

Because a business credit score has a range of between 0 and 100, a rating of 75 or more is generally regarded as excellent. Reviewing your credit report will not negatively influence your credit score. You can also contest entries that are outdated or expired. The following steps can quickly improve your business credit score.

 

Carefully analyze your current credit reports

The first step is checking your business credit score by obtaining your commercial credit report. This is accomplished in the same way that you would receive your personal credit report, by visiting the website of one of the leading credit reporting agencies and requesting your report. Once you have your report, you should go over it closely and dispute anything that has been reported inaccurately.

 

Check with suppliers and vendors

One of the ways that businesses really take a hit on their commercial credit rating is by falling behind on paying their suppliers and vendors. For this reason, it is a good idea to stay in regular contact with your suppliers and vendors and ensure that you are caught up. If you are behind, just making a payment arrangement and beginning the process of getting caught up will go a long way toward improving your business credit rating. Once the unpaid balance has been brought up to date, ask the supplier to send the positive update to the business credit bureaus. Another way to increase your credit rating is to make certain that you have all the proper business licenses, registrations and permits for the type of business that you’re operating.

 

Be credit smart

While being current with your creditors is an important part of maintaining a strong business credit rating, there are other financial facts and figures that can hurt your credit rating. The most important in this regard is your ratio of debt to remaining credit on all of your credit lines. By keeping your outstanding credit ratio low, it will certainly improve your business credit rating.

Demonstrate your credit worthiness by opening a reasonable number of credit card and loan accounts and observing the rules associated with those accounts.

 

Timeliness

In terms of business credit, timeliness refers to more than just making payments on time. Creditors want to see that you are committed to maintaining an impeccable commercial credit history. In this regard, making your payments early whenever possible is certainly your best practice.

Checking your business credit score is just as important as being aware your personal credit score. This is especially true if your company is listed as a limited liability corporation or LLC. If you are the sole proprietor of your business, it is likely that your personal finances will be somewhat interwoven into your company’s finances, but an LLC will be a completely separate entity and will therefore have its own credit score that is separate and unique.

Understanding how your business credit score works and how you can improve it will throw the doors of opportunity wide open to you as you seek the financial resources necessary to promote the growth and the continued success of your company.

Tags: Business Credit

     

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