Just like maintaining a good credit score is important for your overall financial health, the same is also true for maintaining a good business credit score. This is easier said than done, however, as your personal credit will be linked to your business until you’re established. As a new business, you need good credit for everything from getting an approval for a business loan or lease agreement to expanding in the future.
So, how can you build credit for your business this year? Here are some of the most powerful methods you can employ.
1. Ensure That All Loans Are Under Your Business Name
The most important thing you can do to increase your business credit score is ensuring all of your business debts are listed under your business name. When you first start out, you’ll probably need to start taking loans in your own name as your business won’t have any credit established on its own. The only way you can establish and grow this is making these arrangements as soon as you can. If you already have business loans secured with your personal data, have this changed to your business name whenever possible.
2. Start Growing Your Capital
In part, the credit of your business is determined by it’s worth in contrast to its debt. Taking the time to boost your capital and assets can go a long way toward increasing your business’s credit score so think about bringing in investors if you don’t already have a large asset base.
Note: Funds you receive from investors will not count as debt so it can be used to increase your asset base without affecting the debt load of your business.
3. Get a Business Credit Card
Another factor that determines your business’s credit score is your available credit compared to utilized credit, just as with your personal credit score. Boosting the credit in your business’s name will go a long way toward increasing your credit score.
Take the time to shop around and choose an affordable business card, perhaps even one that earns rewards, and use it carefully. Keep the balance low to see the maximum benefit and avoid opening a number of cards at once, as this will have the opposite effect!
The goal here is achieving a healthy credit-to-debt ratio without showing too much credit available. Aim for utilizing no more than 20-30% of your credit limit at once.
4. Make Sure Your Vendors Report Payments
Do you have a solid payment history with suppliers and vendors? If so, make sure they’re letting the business credit reporting agencies know this. A good report from a single vendor will go a long way toward boosting your credit score so ask them if they’re reporting to Dun & Bradstreet, Equifax and Experian.
5. Keep Inactive Accounts Open
If your business has a few credit accounts that you don’t use and never report a balance, avoid closing them. Closing an account lowers how much available credit you have and this will lower your business’s credit score. Keep the account open and, if you have existing balances on other business cards, try transferring your balances around so they’re distributed evenly.
6. Check Your Business Credit Report
Take the time to review your business credit report from Experian, Equifax and Dun & Bradstreet and check for any errors. If you find anything that’s incorrectly reported, dispute it right away to get it removed and see a quick boost to your credit score.
7. Always Pay Everything on Time!
Finally, this last tip applies to both business and personal credit: the best way to build your credit score is through on-time payments. Every month you pay those business credit cards on time, your business will see a small boost in its credit score that starts to build over time.
Paying off large loans will cause an even greater increase so it’s a good time to start paying off your start-up loan, if you took one out. Keep up on-time payments and your business will have a sterling credit rating in just a couple of years.