Improving Your Small Business Credit Score

Improving Your Small Business Credit Score

If you are a small business owner, you’ve probably considered where you’ll operate from, what type of product or service you’ll sell, how you’ll advertise and several other factors that determine whether or not your business is successful. You might be forgetting one of the most important factors, though. Your business has a credit store separate from your personal credit history, and its score is a determining factor for lenders. Use these tips to improve your small business credit score.

Fix Your Personal Credit Score

While it’s true the two are separate, your personal credit score will matter in the beginning. Before your business is established, potential lenders will look at your personal credit history to determine whether you are at a high risk for not paying back a loan. Before applying for a small business loan, pay off any outstanding balances on your personal credit history.

Create a Separate Business Identity

If you don’t register your business, lenders likely won’t consider your business separate from your personal finances. Give your company its own identity by forming a limited liability company (LLC) or incorporating it. You should also apply for an Employer Identification Number (EIN), open a separate bank account for your company and get a separate phone number. Be sure all of your company’s information is available to the public.

Begin Building Your Company’s Credit History

Once your business is a separate entity, you need to begin to build its credit. The easiest way to do this is by getting a credit card specifically for the business. Use your card to purchase equipment or inventory and to pay vendors, and be sure to pay the bill on time each month. Doing so shows you are financially responsible and will make it easier to get a business loan when the time comes. For the best results when building your business credit score, don’t max out the card. Aim to use 30 percent or less of your credit. For example, if your business card’s limit is $50,000, you shouldn’t use more than $15,000.

Closely Monitor Your Business Credit

Just like mistakes can happen on your personal credit report, they can happen on your business credit report. Obtain your credit reports from the major reporting agencies — Experian, Dun & Bradstreet, TransUnion and Equifax — regularly and work to fix any mistakes as quickly as possible.

Establishing a good business credit score is one step closer to running a successful company for many years to come. Credit can be tricky, so if you find yourself feeling lost, be sure to contact a professional for assistance.