No question, a good personal credit score is something every small business owner should build and maintain. Did you know your business credit profile may be even more important to some lenders for your business’ long-term ability to secure a small business loan? We recently shared some suggestions to boost your personal credit score, today we’re going to talk about five things you can start doing right away to improve or build a strong business credit profile.
Your business credit profile includes detailed information about your business credit accounts—including utilities, credit cards, banks, suppliers, and other creditors. This information will include the dates when your accounts were established, any current outstanding balances, any past due accounts, and a detailed history of all your payments. It also provides information available from the public record about your business culled from city, state, country, and federal records; including any potentially negative information about tax liens, lawsuits, judgments, and previous bankruptcy actions.
There is no quick fix for a less-than-perfect credit profile and it takes time for a new business to build business credit, but here are five things you can start doing now that will help you build a strong foundation:
- Make sure your profile is accurate: It’s not uncommon for business owners to find errors in their profile. Fortunately, the business credit reporting bureaus (the three biggest are Dunn & Bradstreet, Equifax, and Experian) are motivated to make sure their data is accurate. Since they sell access to their information to lenders, inaccurate or out-of-date information isn’t very valuable—all three have processes in place to resolve legitimate disputes and correct verifiable errors. What’s more, sometimes even minor errors in your profile can make it more difficult for your business to qualify for a loan.
- Keep your personal and business credit separate: This can sometimes be a challenge for business owners—particularly during the early years when business credit is harder to come by. Nevertheless, finding ways to establish business credit and avoiding the use of your personal credit is a good practice. For example, instead of using your personal credit cards, apply for a business card. The higher balances that often accompany business expenses can actually hurt your personal credit score because 30 percent of that score is a reflection of how much credit you have compared to how much credit you use. This is true even if you pay the balance down to zero at the end of every payment cycle. What’s more, using your personal credit card does nothing to build a stronger business credit profile, which will make it harder to access a business loan down the road.
- Establish trade accounts with your suppliers: This is one of the best things you can do early in your business to build a strong credit foundation. In a recent conversation with Experian’s Peter Bolin, he mentioned the importance of building these relationships for new businesses. When talking about a recent Experian study looking at credit use among startups, he suggested “…the average small business owner [of those studied] is creating 1-1/2 trade credit relationships each year and using smaller loans to build their credit profiles over the first few years. Ultimately indicating to us that many of these businesses are great borrowers.” This credit is relatively easy to get and a great way to build a strong business credit foundation.
- Make sure your suppliers report your good credit behavior: If your suppliers don’t report your good history to the bureaus, you may be building a good credit reputation with that particular vendor, but you’re not doing anything to build a good credit profile. This is important enough that you should ask every vendor you work with and seek out those that do.
- Use the credit you need and stay current: The single biggest thing you can do to positively impact your business credit profile is to make regular and timely payments on your business credit accounts. Avoiding the use of credit entirely isn’t a good long-term strategy because building a strong profile is about demonstrating that you know how to effectively leverage credit when you need it and that you will make the periodic payments on time when you borrow.
For more information about a business credit card and building strong business credit, click HERE.