Building business credit requires the same research, patience, and due diligence as building or repairing your credit. It may take some time, but it can be done. Here’s a quick guide on how to establish, build or repair your business’ credit in six months.
Month One: Assess the Situation
There are three main business credit bureau: Dun + Bradstreet, Experian, and Equifax. Unlike personal credit scores that have a standardized score (FICO), each business credit bureau has its method of scoring. Business scores are public and information is solely reported using the company’s name.
Before getting started it’s important to determine where you stand. Is your business legally formed? What lines of credit (e.g., loans, credit cards, etc) do you have if any? Have you applied for a D-U-N-S Number for reporting with Dun + Bradstreet? Do you have an EIN or Tax ID with the IRS?
Month Two: Check Your Scores
Pull both your personal and business credit reports. When applying for any kind of financing, lenders will consider both unless your business has a strong, long-standing history with years of significant revenue reporting.
Business credit scores range from 0-100 and will contain a variety of information (e.g., name, location, lines of credit, key personnel). Business owners can receive a report, for a fee, from each credit reporting agency.
Month Three: Examine Your Report
Examine your score to see who’s reporting and who is not. Neither lenders, vendors nor suppliers are obligated to report to any, let alone all, credit reporting bureaus. To build credit, it’s important to work with businesses that report positive transactions to credit reporting agencies. Some businesses may have whether or not they report to the bureaus on their website. If you cannot find it, ask them.
Month Four: Clean Up Your Report
Just like your personal credit report, business credit reports can hold a host of errors. If you find a discrepancy, file a complaint with the associated bureau. Take this month to also make a plan for building valuable and mutually beneficial vendor/supplier relationships. Work with companies who report to, ideally, all three credit reporting agencies.
Month Five: Apply for Business Credit
It’s important to keep your business expenses separate from your ones. Doing so protects you personally (legal liability) as well as your assets. Look for a credit card or line of credit, that offers you flexible and manageable repayment terms alongside other perks. When considering a business credit card, look for low-interest rates, no annual fees, reward programs as well as rules governing employee cards.
Month Six: Create and Sustain Good Habits
Pay your balances in full every month. If you cannot afford to, scale back and adjust your company’s budget so that you can pay more than the minimum balance. Business credit works identical to personal credit, you want to pay on time and in full if you can. Be mindful of utilization and conscious of your debt-to-income ratio.
Building great business credit puts you in the best position when it comes time to qualify for financing in the building. It allows you the ability to grow and expand your business with favorable lenders, rates, and benefits.