Getting to Know Business Credit
If you’re using your own credit to finance your small business? If so, you may want to rethink that strategy. Using business credit instead can help grow your company without jeopardizing your personal finances.
Like personal credit, it can be intimidating to worry about the credit score of your business. However, building this score can help potential lenders understand the health of your business and lend accordingly. Here are the basics that all business owners should realize:
What is a Good Score
To understand how to build your business credit score, you must first know how the scoring works. Unlike personal credit, the score for your company ranges from zero to 100. Anything over 75 is an excellent credit score for a business.
What Credit Agencies Consider
Credit rating agencies use an algorithm and your business information to determine this number. First, they consider the statistics of your credit. For example, credit rating agencies look at how much you have borrowed, your company’s credit limits, how much you have paid back, and if you pay on time.
Then, agencies may consider information from public records, such as bankruptcies, liens, and legal judgments. Finally, these institutions look at the number of years you have been in business and your company’s size.
How to Establish Credit
Before you can build credit, you must first become a legal business. This means getting an Employer Identification Number. Don’t be fooled by the name; even sole proprietors need an EIN to build business credit.
Furthermore, you may wish to become incorporated. Many small business owners also choose to open a bank account in the company’s name and get a phone line solely for the business. Each of these steps can help grow the company’s credit score.
Get Some Credit
Once you have established the business in all the way you need, you can open credit accounts in the business’ name. This can be in the form of a small business loan, a company credit card, or even an account with a vendor. If you have at least 30 days to pay the money back, it can be considered credit.
Just as with your personal credit, it’s important to consistently monitor your business credit. You may have to pay a fee to access your score, but it can be well worth the money. Be sure to look at the full report, not just the score. If any information is inaccurate, report the mistake to the credit agency immediately.