How to Establish Business Credit

When it comes to starting a business or learning to manage an existing one, there are a number of important business concepts that a business owner needs to understand. One of those concepts is a business credit. It takes some effort to establish business credit but doing so is a crucial part in building a secure foundation for your business.

What is Business Credit?

Lenders and banks look at your personal credit report to assess your ability to borrow money as an individual. Over the years, you have built a credit history that is filled with information about credit cards, loans, and other financial interactions. This information is used to establish your personal credit score which represents how responsible you are as a borrower and how much banks and lenders can trust you with credit accounts and loans. It is possible to establish a business credit score in addition to your personal credit score.

Business credit works similar to personal credit. Just as your personal credit score is a compilation and analysis of your individual lending habits, your business credit score is a compilation of financial information related to your business. One of the main differences is that many credit bureaus will not actively seek out transactions to establish a business’ credit history. Instead, these transactions must be handed over voluntarily. Any individual starting a business can establish a credit history for that business by filing their transactions with the credit bureaus.

Benefits of Establishing Business Credit

Just as establishing good credit is necessary to receive personal loans and qualify for better credit offers, establishing business credit is necessary in ensuring a strong business. Businesses often deal in larger-quantity purchases and may have a variety of overhead costs. Most businesses need a source of credit to cover the expenses before profit starts to come in. this where establishing business credit is important.

How Does an Owner Establish Business Credit?

You need to proactively report credit accounts and history to three business credit bureaus which are Experian, Equifax, and Dun & Bradstreet. This will enable the bureaus to provide an accurate credit score which will help establish your business more securely. Many investors and potential suppliers will check credit reports before deciding whether to do business with you. A lack of credit or poor credit can lead to a loss of business opportunities.

Keeping track of your business credit report is important and you need to be aware of what is on the report because this is what other people see when they investigate your business. Checking your business credit score regularly means you are not only protecting yourself against fraud, but you are also making sure the proper depicts your business and its current level of financial stability. Having an incorrect business credit report can damage your reputation and prevent you from conducting business in the ways you want to.

Know Your Business

One of the best ways that you can make sure that your business is operating at the optimal level is to always be fully aware of what is going on with every aspect of it. It will be hard for you to make appropriate and product decisions if you do not your business inside and out. One of the most effective steps you can take toward understand the financial state of your business is by keeping up with your business credit regularly by checking credit reports.

Top Tips to Remember

  • Do not rely on your personal credit. You can damage your personal credit score and make it harder for you to qualify for any type of financing in the future if you use your personal credit for your business.
  • Always pay your bills on time. If you make even just one late payment, you can damage your credit. Set up a system to make sure that you pay your bills on time all the time. Set up automatic payments or pay early if possible.
  • Check your score regularly. You will want to know where your credit stands and checking your score regularly can help you see how your actions affect your score.
  • Review your credit reports for errors, both informational and financial. Make sure to check your reports for errors and go through the process with the respective credit bureau to correct them.

The Bottom Line

A strong business credit score can help you secure better interest rates on loans, decrease instances where you need to prepay for a specific product or service, and secure better trade terms with important suppliers in your industry. In the long run, this will help you save money, keep cash flow liquid, and access the funds or assets you need to help your business grow. Now that you understand the importance of having good business credit, make establishing it and building your business credit a priority.