Many people are unaware that their business has a credit score. If you own or plan to own a business, your business credit can be equally as important as your personal credit. Building a solid business credit history will allow you to secure loans and even be on a good standing with potential suppliers.
Here are some tips on how to do it.
1. Maintain a Solid Personal Credit Score
If you are starting your own business or looking to get a loan for your business, then having a solid personal credit history and a good credit score is crucial. Many business lines of credit, for instance, will require a personal guarantee so they'll be looking at your personal credit report. (You can pull your credit reports for free each year at AnnualCreditReport.com and view two of your free credit scores, updated every two weeks, on Credit.com).
In order to maintain a solid credit score (or boost your score), be sure to make all of your credit card payments on time and never miss a payment. If you are planning on securing a loan and you haven't been in business for many years, then you may want to make sure you and your partner(s) have good credit. You may want to sit down with your partner(s) and go over each other's credit before speaking with a lender.
If you or your partner(s) have a low credit score or income, then you may decrease your chances of qualifying for a business loan. However, once you fully establish business credit and are running for several years, then the commercial credit score will be less tied to the credit score of its owner and/or partner(s), so you won't have to stress over your partner maintaining a solid credit score at all times (though it's still a good idea to maintain solid personal credit).
2. Keep Your Business Information Updated on Your Credit Report
Checking your business credit report isn't always routine for business owners, but it should be a top priority. You can check your business credit report for the three major credit bureaus (Experian, Equifax and TransUnion). Another company, Dun & Bradstreet, is one of the oldest and most well-known bureaus that works solely and primarily with business credit. Unlike consumer credit reports, which can be accessed for free once a year under federal law, business credit reports and scores do not have to be offered for free, and prices vary based on the bureau.
It is important that you first understand how to read your business credit report, then be sure to check (as you do on your personal credit report) for any errors or out-of-date data. For example, if your office has changed from "Bob's Burgers of Long Island" to "Bob's Burgers," then you should be checking that your business credit report states this as well to avoid potential concerns later on.
When checking your business credit report, you may not see all of your credit cards on it, and that is okay. Since information about your business is reported to the credit bureaus voluntarily, not all of your credit information will be on your business credit report. Credit cards and other loans will show up on your credit report if creditors voluntarily report the payment information.
3. Use Your Business Credit Card Responsibly
If you have a business credit card, it is important to make sure all of your payments are on time or early. Once you've established a payment history on your card, then you can apply to increase your credit limit.
Having a business credit card can help you stay organized, streamline your bookkeeping and separate your expenses. Some business credit cards also come with rewards programs that align with your business expenses.
Even though a business credit card can help establish and build your business credit, you should also be cautious of the fine print. The CARD Act of 2009 added certain protections to all consumer credit cards but does not cover business credit cards. This means your interest rate can increase without warning. You also may be subject to penalty interest rates, meaning that if you miss a payment on your card, your rate may increase as well. Always stay on top of your business credit card, read the fine print and ensure you make all payments on time to avoid this.
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