Everyone knows that they need to have an excellent personal credit score to qualify for consumer loans, such as a home loan, to manage one’s finances. However, do you know having not just personal but business credit score is also critical? If you own a business, you may need to apply for a small business loan or business credit card. Your credit score can have an impact on it, but for financial help for your company, you would need to show your business credit rating also.
A close look at the business credit score
Positive personal credit history is necessary to let your lenders know you can repay the borrowed amount. Likewise, your higher business credit score helps communicate to your lenders its trustworthiness. Equifax and Experian are some of the leading agencies that get details from your vendors and lenders. These agencies process the information with the help of a credit reporting algorithm to ascertain your business credit. A personal credit rating may vary in the range of 300 to 850, while a business score can be anywhere from 1 to 100. The higher your score, the better for your company’s reputation!
Benefits of business credit score
When your personal credit score is healthy, you can quickly get a desirable financing option at lower rates and terms. Similarly, a positive business credit record is evidence of your full, timely repayments; hence, creditors may not hesitate to offer you business loans. Besides, suppliers also check your track record to confirm your payment status. When they find everything is fine, then only they do business with you. With a good business credit rating, you can easily persuade vendors to give you a better payment credit term of NET 30 or NET 60. In essence, building business credit can be advantageous for you in multiple ways, such as:
- Easy access to small business financing options
- A strong relationship with vendors and suppliers
- Less use of personal credit score for business purposes
- Better reputation for your company
Hence, if you didn’t think about your business credit score earlier, you should seriously start doing something about it now. Before you walk this path, make sure to check whether there is already a business credit file of your company or not. Knowing this can help you work on your credit rating more wisely. Generally, Experian and Equifax create business credit files of the companies for public records. These contain all types of financial data, such as your payment reputation, court records, etc. So even though you did not open one with any business credit agency, those agencies will have adequate data to represent your business credit report.
You can go online and have a look at Score Sense credit report or some other service platform to check your business credit history. Checking credit records at regular intervals can help you track down and correct errors or misinformation that can hurt your positive ratings.
Tips on how to set up a business credit
Establishing a business credit history may appear to be a mammoth task to you because different bureaus follow different rules and rating systems. Some credit score checking agencies may need you to open an account with them for tracking and monitoring purposes. The process can feel complicated for any startup, but here are a few techniques that can solve your concern.
Starting up as propriety or general partnership business can ease the burden of paperwork. But it will not come in handy if you apply for a business loan. Any negative or positive business activity will have a direct impact on your personal credit account because this structure treats you and your company as a single entity. However, if you open an LLP, LLC, or a C- or S- corporation, then you can get rid of it. For advice with a suitable business structure, you can consult your business lawyer or accountant.
Employer Identification Number (EIN)
The department of revenue requires EIN for tax purposes. It serves the same goal for businesses as Social Security numbers do for personal taxes. You can do with Social Security number if your company is not registered. But it is a must otherwise. Since you can get EIN for free, it will be smart to apply for one. Having it can benefit your company, particularly when you apply for a business loan. Only your business credit will count and not your personal credit record.
Business bank account
Head for opening a business checking account at nearby local or national bank so that you can keep your personal and company’s expenses separate. Also, if you have a business bank account, you can borrow money easily from lenders. It will also have a positive impact on your business credit.
Business credit card
Another way of building your business credit is by using a business credit card for daily business transactions. It will help you keep your personal and business financial matters distinct. Make sure you pay your bills early or on time. Consistency in on-time payments can eventually help you raise your business credit score. You can also opt for a business line of credit, which works pretty much like a credit card. The only difference here is that you don’t need any physical card. You get the amount in your bank account for use as and when you need it and have to repay it within a specified period.
Choice of lenders
If you want to take advantage of your good credit behavior, then borrow money from creditors who send borrower’s payment histories to the credit rating bureaus.
Since lenders and suppliers can check your company’s credit before associating with you, you should regularly check your credit history at all the major business credit rating agencies. It will help you rectify or update the latest details.
Building a positive business credit history can be a time-consuming and arduous process, but it’s worth every bit of it. So, don’t shy away from practicing what is best for your company. Also, be a responsible borrower.