How To Build Up Your Business Credit Score

Banks assess risk prior to lending funds or providing a line of credit to a business. In an attempt to minimize risk, banks utilize credit scores to analyze a business’s financial health. Therefore, when considering applying for a line of credit or loan, a company might want to review its business credit score to determine its odds of securing credit. In cases where a score could be low, there are actions a company can take to optimize its appeal as a credit candidate.


Incorporate the Business


A small business that is set up as a sole proprietor might want to consider filing as a corporation or LLP (limited liability partnership). Incorporating a business helps to separate personal from business finances so a firm’s assets are less likely to be affected. Then, as a corporation, a company would file for an EIN (Federal Tax Identification Number), which is often required by banks for a business checking account.


Obtain a Company Credit Card


Credit reporting bureaus monitor credit card usage, and banks often rely on these bureaus to provide insight into a business’ spending and payment history. Therefore, a company credit card is one way a firm could build its credit. A company does not have to use the card, but, if charges are incurred, a business will want to pay its required minimum payment within the due date.


Pay Vendors Promptly


By paying vendors promptly, a business demonstrates good fiscal responsibility and the likelihood that the firm will be accountable to a lender. Additionally, financial accountability may lead to a positive working relationship with vendors. A company also avoids incurring penalties for late payments and unnecessary debt, which could affect a business credit score.


Keep Business and Personal Finances Separate


Setting up separate accounts for business and personal expenses helps to differentiate the two. This also can simplify the tax reporting process for a business. As well, company finances will be less at risk in the case of a personal financial loss.


Check Your Credit Regularly


Maintaining a good business credit score might also require some periodic report monitoring throughout the year. It can be beneficial for a company to set up a time schedule for checking its credit report. This way, any mistakes or errors can be caught early and rectified before a mistake becomes a bigger problem.


The factors that influence a business credit score are not complex, but they require vigilance. By incorporating a firm and opening up a company credit card, a business owner can begin to establish credit history. Then, by maintaining responsible behavior with its creditors, a company can build its financial credibility and create opportunities to thrive.


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