Many times, business owners don’t understand that they have an opportunity to differentiate between their personal credit and their business credit. However, by pursuing credit separately for your business, you actually keep your personal score safe. Also, you give yourself better access to lending options and open yourself up for more flexible options from vendors. There is no doubt about it: a solid business credit score is crucial for the health of your business’ finances and reputation. If you haven’t started building your score already, follow these 4 tips to get your business on the credit map.
4 Steps to Jumpstart Your Business Credit Score
1) Get Listed - Some times, for the business credit bureaus to notice you, you have to make them. The easiest way to go about this is to get a D-U-N-S number. To do so, check out Dun & Bradstreet’s (one of the biggest business credit bureaus) website and find out if your business is listed. If not, you can apply for a free number as long as your business is an established entity. This gets you on the bureau’s list and will prepare you when creditors and contractors ask for a D-U-N-S number during an application. Be prepared that to get listed, you will need your contact information, entity information and any financial information you are comfortable disclosing.
2) Choose a Small Business Credit Card - One of the fastest and most simple ways to start building a credit history is to get a small business credit card. This is helpful because, again, it separates your business and personal expenses. It also immediately allows you to create an opportunity where somebody is “lending” you money and you are paying them back on time (hopefully so, at least). When shopping for the right credit card for your small business, be sure to consider the following:
- Interest rates
- Credit limits
- Fees
- Rewards and incentives
- Expense tracking
There are a ton of great options out there that have rewards and incentives specifically designed for a small business. Check out these best small business credit cards.
3) Ask For Terms From Vendors - Credit bureaus usually require about 4 vendor lines of credit to assign you an accurate credit score. Therefore, it’s important for you to start asking vendors if they will extend payment terms. Take note that not all vendors report their payment history. You see, for a credit bureau to be able to consider a vendor line of credit, the vendor must report it. So, always be sure to ask your vendors if they do so. If you have no luck with your current vendors, try purchasing Dun & Bradstreet’s trade reference program that lists companies that report data to the bureaus. Also, you can turn to larger retailers as they tend to report. It’s good practice to open business credit accounts with places like Office Depot, UPS, Home Depot, etc. Most importantly, be aware that unlike in personal credit, if you pay early in business, it can positively affect your score. Therefore, if you can pay early, DO!
4) Open a Business Bank Account - It is crucial to run your business finances out of separate account than your personal. If you commingle the assets, a lender or supplier can provide it as evidence to go after your personal assets. But beyond simply protecting your personal assets, opening up a business bank account creates an opportunity for you to establish a commercial relationship with a bank, which helps when applying for financing. Also, if you plan on applying for terms with vendors (which, as we’ve learned, you should), they are going to ask for business bank references during the application. Be prepared.
In today’s economy, where it is becoming increasingly difficult for small businesses to access capital, it is more important than ever for businesses to focus on building strong business credit. Not only does working towards this help keep your personal finances safe, but it will give you greater access to that capital and help you gain better control of your cash flow.
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