Building your business’s credit score can involve a variety of different steps.
Below we will explore the three most important steps that you must follow if you are looking to improve your business credit score in a non-complex and straightforward way.
Step 1: Make Sure to Properly Set Up Your Business
Here is the first and one of the most important steps that you can take in order to improve your business’s credit score. Ensure that you have set up your business properly- satisfying all of the legal requirements that are involved.
Use the Right Business Structure
Choosing the right business structure can go a long way in ensuring your business radiates a certain element of credibility and reliability. Your best option here is to incorporate your business- registering it as either a Limited Liability Company or as a Corporation.
Business credit score cannot be improved if you are working as a sole proprietorship as your personal and professional finances are not legally distinguished as two separate entities.
Get an Employer Identification Number (EIN)
After you correctly register your business (taking into account your most favourable business entity structure) you will be required to set up an Employer Identification Number (known as an EIN).
It is worth noting that your company will need to satisfy a plethora of legal prerequisites in order to be eligible for an EIN- including being incorporated.
Set Up a Business Bank Account
Setting up a business bank account will: a) provide you with a plethora of financial benefits (such as loans), and b) improve your financial organization by separating your personal and non-personal finances.
Get a Business Phone Line
Whilst this point may not seem as important when talking about business credit, it is important in relation to the way in which lenders will view your company, and consequently the way in which they decide whether to extend your business credit or not.
Get a Business Website
Getting a business website can help you improve your business credit in a similar way to getting a business phone line. Overall, it will act as an active representation of your company’s image, and will also provide crucial information that lenders will rely on to audit your personal information and history.
Step 2: Build Business Credit History
This is a crucial step, and in fact is one that can handicap a variety of business owners indirectly. This is because, in order to have good business credit, you will need to have allocated a sufficient amount of time in order to build it.
Pay All Bills and Credit Lines on Time
Paying all of your bills and credit lines on time (or early, if that is financially feasible) is undoubtedly one of the most straightforward, easy, and efficacious ways for you to build and maintain a good business credit score.
In order to ensure that you never miss a business payment inadvertently, you should take steps to: a) organise reminders via your business’s calendar apps (such as through Google or Microsoft), and b) always prioritize your bills by importance.
Set Up Net-30 Accounts
Net-30 accounts allow businesses to pay for any business product or service that they need up to 30 days later after they purchase it.
Aside from the obvious general cash-flow benefits which businesses can enjoy as a result of having a Net-30 account, adequately repaying these payments on time can go a long way in successfully building a business’s credit history, as these vendors report directly to U.S credit bureaus.
Step 3: Know What to Avoid When Building Business Credit
Avoid Predatory Lenders
Whilst these can seem harmless initially, these predatory lenders are becoming increasingly ‘’sneaky’’, offering exorbitant loans coupled with very high daily interest rates which- in pragmatic terms, makes repaying them back on time almost impossible.
Having Outdated Business Information
Not properly updating your business information is one of the most easy and negligent ways to hurt your company’s business credit score; this is because it can indirectly affect a plethora of the important steps mentioned above.
Above we have delineated the most important steps that business owners can take in order to adequately ‘’fix’’’ their business credit score.