A business credit score is a number that shows how reliable a business is as a borrower/debtor. The major business credit reporting agencies-Equifax, Dun & Bradstreet, and Experian-collect data from business vendors and creditors and process it to establish business credit scores.
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Your business must first fulfill corporate compliance requirements to be deemed “credit-ready.” Typically, some entrepreneurs rely on their personal finances to fund their businesses, hence their personal credit-like auto loans and mortgages-affect how much credit their business can get and if they qualify for the credit products. However, it is crucial for a company to have a credit history and rating.
Below are some steps that a startup needs to carry out in order to establish a good business credit and to start obtaining credit.
1] Start a business entity
You need to separate your personal credit history from that of your business. To do so, you start a business and incorporate the entity, since sole proprietorships do not qualify for business credit and have to rely on that of their owners.
You must have your business listed as a corporation or a limited liability company for it to be a separate entity and to have its finances and credit separate.
2] Obtain a Tax Identification Number
Businesses (incorporated ones) must obtain tax identification numbers in the same way individuals have social security numbers. The tax ID number enables a company to open bank accounts and is the foundation for establishing a business credit profile. You can easily apply for the number online or in the relevant offices.
3] Open a business bank account
A bank reference is a necessity for a business to build credit. The business bank must have been in existence for at least two years when seeking a loan. You should open a bank account at the earliest opportunity once you set up your business.
To improve your business credit level, the bank account should reflect some activities involving cash flow, preferably on a daily basis, to determine the average balance.
4] Get a business address and phone number
Establishing a business address and phone number specifically for the business affirms its autonomous existence and enables it for registration in business directories, which are crucial steps in building credit.
5] Get listed with business credit reporting agencies
You need to open credit files with the major business credit reference bureaus. Dun & Bradstreet is among the most popular business credit reporting agencies, and its Paydex business credit score is mostly referred to by creditors and vendors.
If you intend to build credit for your company, it’s advisable to open a file with D&B and others. To do so, you need to register for a Data Universal Number System (DUNS)—an identification process for businesses using numbers.
6] Establish a business credit history
Your business credit history will depend on how many vendors or creditors report good payment patterns from your company. Since small vendors do not often report to reporting agencies, your business should have at least three trade references on a trade reference sheet, with their names, contacts, and credit limits included.
Ensure that your business maintains a good relationship with its suppliers and creditors, and that it has a good mix of lenders, creditors, and vendors to build good credit. Regular, on-time, and in-full debt and loan repayments will boost your company’s credit score.
Additionally, you can work with professionals in boosting credit scores to improve your business credit rating. You can easily find such professionals at https://www.boostcredit101.com/, and your business credit score will improve significantly.
7] Update your business taxes
The timely filing of taxes is critical for your business compliance, as well as to avoid hurting your business credit. Also, you should pay the outstanding amounts in addition to filing taxes in good time. If there are potential tax problems, seek the assistance of tax experts.
8] Keep your business information updated with credit agencies
Continuously monitor your business credit reports with the main bureaus and update your company’s data with the agencies, including uploading financial statements.
9] Be responsible with your credit
As is the case with personal credit, borrow responsibly when it comes to business, too.
Your business will not get an impressive score in a short time, but with responsible borrowing, having a variety of credit accounts, and settling your obligations on time and in full will significantly boost your company’s score. Also, keep in mind that too much debt can ruin your business score, the same way it can do to a personal credit rating.