You’re probably aware of your individual credit score, but did you know your business has a score too? Even if you, as an individual and business owner, have poor personal credit, there are methods to build and improve business credit scores separate from your own personal credit. Read on for some insight into what business credit is, how it works and how business credit scores can be improved.
Manage Your Business Credit
First off, you should determine whether you have a business credit file or not, especially for small businesses. If you don’t already have a DUNS number through Dun & Bradstreet, apply for one. This is a unique nine-digit ID number that will help you start a business credit file. Once you have this number, you can then find out what your business credit file says about your company and what your score is. It’s important to establish a business credit history early on, according to the Small Business Administration (SBA). You may have been using your personal credit to get your business up and running, but now it’s time to start putting expenses in your business’s name and pay your bills that way. This will help build a positive credit history in your business’s name and make it easier to get financing down the road.
Speaking of bills, be sure to always pay them on time to boost credit rating and develop a positive history of on-time payments. Lots of things go into a credit rating for a business—up to 150 things factor in—so be wise in your purchases and don’t take on more than you can handle. Don’t just check your credit file once and leave it at that. You need to constantly monitor your credit file and make sure it’s up to date. Through this monitoring, you will be kept abreast of any rating changes that happen before they can negatively impact business relationships with suppliers, customers, and banks. Make sure the file contains accurate information pertaining to your business’s number of employees, address, outstanding revenue and the like. Keep an eye on the credit of your vendors and customers, too.
How it Works
Business credit scores generally range from 0 to 100, with 75 or more being an excellent rating, as opposed to personal credit scores which typically range from 300 to 850 with scores of 680 or higher being excellent. Paying your bills on time is definitely important, but your score can be affected by other factors as well, such as the amount of credit available to you, how long you’ve had a credit profile and even how many inquiries have been made into your credit profile. Review your credit profile frequently and correct any information that is untrue or incorrect, reporting this as soon as you notice it.
Improving Your Business Credit Score
Improving your credit score is definitely a work in progress, but you can start with forming a corporation or LLC for your business by obtaining an employee identification number (EIN) from the IRS. Then, register your business with all three major credit bureaus. Comply with the requirements of the credit market in order to avoid red flags being raised on your account. This can be as simple as making sure your business license is up to date but could require some serious effort if you let it slide for too long. Make sure you have a business plan in place and manage your debt well so you don’t go into default on your payments (a quick way to earn a negative rating). Keeping your business credit profile active means you’ll have to make on-time payments to credit grantors.
Business credit scores are a lot like personal credit scores, and they need to be maintained in the same way. The bottom line? Review your credit file on a regular basis, make any changes as needed, and stay current on your loans and other bills.