How To Build A Business Credit Score

To secure financing, a business needs a sufficient credit score. This rating works similarly to a personal score for individuals. It is perceived as a summary of your company’s credit experience and a reflection of its creditworthiness. Lenders are reluctant to accept low-risk applicants, be they businesses or individuals. If your company has just been launched, or you would like to boost your score, read on.

Companies should focus on establishing a strong credit profile early on. It is crucial for success, as the metric is used by suppliers, insurers, and other entities that evaluate the financial stability of your firm to make decisions. Getting started requires some forethought. Follow the steps below to make sure your company will be well-positioned to get approved for a business loan when the time comes.

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How It Works

Unlike personal scores, the business score scale is more narrow — from 0 to 100. The number of points you get is calculated based on data aggregated by three bureaus — Experian, Equifax, and Dun & Bradstreet (TransUnion does not offer business reporting services). The closer to 100 you get, the better the conditions from vendors and suppliers, and the more likely other businesses are to partner up with you.

Just like personal scores, business ratings may be unjustified. Learn more about these mistakes in the review and check your status regularly. If you notice any inconsistencies, such as late payments, they may be disputed and deleted under The Fair Credit Reporting Act. You can do it yourself or enlist the help of professional repair agents to save time and effort. Here are seven steps that will help you build creditworthiness.

1. Make It Legit

First, deal with the formalities to put your brand on the map. Get a corporate phone number and have it listed in a directory assistance. Registration will also let you open a business bank account. Use it regularly to build history faster.

2. Establish Vendor Credit

While personal credit reports only contain data shared by banks and other lenders, business files include details of your financial relationships with vendors and suppliers. In comparison with personal ratings, the number of variables is smaller — bureaus look at your industry, how you pay your bills, and how much you owe. Note only some vendors and suppliers will help you establish a positive track record — choose entities that report to the bureaus.

A strong relationship with other companies in your niche is like gold. It can help you avoid upfront payments. If your score is high, your reputation will precede you, and other businesses will be more willing to cooperate and provide the best terms. Three vendors or suppliers that agree to the net-60 or net-90 terms are a good start.

3. Get An Identifier

An EIN (employer identification number) is your company’s ID, which is required for filing tax reports. You also need it to open a business bank account, sign business contracts or turn your firm into a corporation. The former is another way to boost the score (find out more below). Obtaining an EIN is easy, as you can apply for it online. While sole proprietors do not need these identifiers to file taxes, they are still required for establishing business credit.

4. Pay Diligently

Timely fulfillment of obligations is the single most important component of the score. Here, the bureaus follow the logic that works for personal assessment. Being diligent with payments demonstrates that your entity is dependable as a partner and can manage debt effectively. Delinquent entries will inevitably spoil your credit file. Even one mistake can affect your status, so make sure you are always on time. Make your payments early or more frequently to boost the score further.

5. Get A Credit Card

The more business credit cards you obtain, the larger the size of available credit, and the faster you can build your history. This is good for your score, but be careful — utilizing too much of it can have the opposite effect.

This works just like personal credit utilization. The less of your limit is used, the better. Experts recommend sticking to 10%, which means that if you have access to $10,000, $1,000 is the largest amount you can spend.

6. Abandon Sole Proprietorship

Turning your business into a corporation or limited liability company (LLC) will allow you to divide business credit history and personal assets. For sole proprietors, both dimensions of the financial past remain connected. In case of lawsuits, their personal assets may be at risk.

Credit cards and lines of credit in your company’s legal name will all contribute to your goal. Do not spend money from your personal account to cover any business expenses. Clear separation makes a big difference, and managing taxes is also easier!

7. Track Your History

Monitor your credit file to correct any errors as soon as possible. Mistakes in business reports may be disputed just like errors in personal files. Commercial reporting agencies are obliged to provide verifiable information, and companies are entitled to accurate records.

On average, a third of all personal credit reports in the United States are flawed due to errors or missing information. This also happens with businesses and makes them look riskier than they actually are. The contents of your report are guaranteed to be reflected in the score.

A Few Extra Tips

Looking at payment details on your business report, you will notice that this information is more detailed than what your personal file contains. This is an advantage. To accelerate score building, make all payments on time or early if possible.

Finally, check that your vendors and suppliers report to the agencies. Not all accounts may do this now, and not all lenders and vendors communicate with all three bureaus. You may not know this until you look at your reports.

Get information from all sources, as every reporting agency works independently. This means that every version of your history is unique. If the current accounts are not adding much information, consider getting more credit references.

If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.

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