Build Your Small-Business Credit Score
You may be very familiar with your personal credit score and ways to improve it, but do you know how to improve your business credit score? Building credit is easy with a few simple steps, but many small business owners are unaware that their business has its own, unique score. Learn how to build your business credit score today with these helpful tips.
There are as many as 800 separate data points that combine to form your business credit score. Unlike a personal score, it can be particularly difficult to find the magic formula that instantly guarantees a high score. Instead, you need to focus on a few different factors in order to improve your business credit.
One way to build your credit score is by creating a strong payment history. Paying bills on time allows a business to create a track record of timely payments and financial responsibility. A similar tactic is to increase your access to business credit while lowering your credit utilization. Having access to multiple lines of credit, loans and credit cards without using the maximum available credit improves your overall business credit score.
Credit inquiries can impact your credit score as well. A large number of inquiries creates a sense that your business requires consistent financing in order to continue to keep the doors open. While taking out credit can be an excellent way to improve your score over the long term, the short-term effects of multiple credit applications is a drop in your business credit score.
None of these steps are effective at building credit if you don’t have a business credit set up. First, you need to protect and separate your business and personal assets by creating an LLC. You’ll also need to obtain a TIN or EIN identification number. Finally, a business bank account and a form of credit, such as a credit card, will put you on the right path to building your credit.
Depending on the type of loan you’re applying for, you should have a target credit score in mind. The most competitive financing typically requires a high credit score, so set your goal and start working toward improved credit.
Monitor your business credit score to find out where you’re at and how to improve your current score. Whether you’re just getting started or looking to expand your business, business credit is an essential factor in rapid business growth. Building credit and expanding your working capital are ways to take on new clients, create new products and propel your business forward.