A strong business credit score doesn’t just help you acquire credit cards and loans. It also helps you leverage financing opportunities, grow your working capital or potentially expand your business for the future. Much like your personal credit score, building business credit helps establish your organization as a trustworthy borrower. Fortunately, there are a few tactics to help get you started on building a favorable business credit score.
What are the benefits of building business credit?
No matter what stage of development your business is in, building credit early can help broaden your prospects for operations, growth and cash flow in the long run. Establishing a credit rating for your business can help open doors to funding options and potentially better interest rates or credit terms from lenders.
Initial steps to establishing business credit history
Follow these steps to help kick start your credit profile.
- Incorporate your business – Registering your business entity provides a separation between your personal and business credit activity.
- Get a federal employer identification number – Think of it as a Social Security number for your business that’s provided by the IRS.
- Acquire a line of credit – which can help provide instant access to funds, term loans to finance long-term capital needs and, most importantly, a financial safety net. Your payment history also can be reviewed by the credit reporting bureaus.
- Apply for a business D-U-N-S® (Data Universal Number System) – This business credit score from Dun & Bradstreet is frequently reviewed by lenders.
- Open trade lines with suppliers – Work with vendors who report payments and can help further enhance your credit profile.
- Obtain business credit cards – These are crucial tools for not only your credit history, but also in helping you manage day-to-day expenses.
- Pay your bills on time – While it’s an obvious requirement, timely payment is the number one factor to maintaining the integrity of a business credit score.
Boosting your existing business credit score
Business credit takes time to grow but can open doors to increasing amounts of capital. However, having a blemished credit score can constrain your opportunities. Beyond paying your bills on time, there are many effective ways to help improve your credit score, enhance your reputation and gain access to future funding sources at competitive rates.
- Monitor your credit reports – Much like personal credit reporting, there are multiple credit agencies that evaluate your business. Businesses credit reports can be purchased through Dun & Bradstreet, Equifax® and ExperianTM . Proactively reviewing your accounts can reduce errors and help you be strategic in managing your finances.
- Decrease your credit utilization ratio – Stay on top of the ratio of credit used to the credit available. Paying off balances, increasing your limit or decreasing the amount of credit card expenditures are ways to improve your ratio.
- Consolidate debt – When it comes to outstanding business debt, removing the volume of small debts from your record results in a lower credit usage ratio and directly improves your score. Business debt consolidation into a single loan also may improve your credit rating.
- Secured credit lines – Here’s a tip for businesses wanting to move beyond a low score – using a secured credit line tethered by an asset such as a cash deposit can help build positive credit history when used responsibly.
Rome wasn’t built in a day and neither was a quality credit score. Take the time to start establishing your business credit early to grow and safeguard your business finances. Think positive and take bigger and bigger steps toward a good credit score to keep your business competitive.