How To Build Business Credit Score – Just as individuals need good consumer credit to get a loan, companies need to establish a successful business credit history. This article will discuss the two to three years it takes to build good business credit and what you need to do to get there.
If you’re starting a business, your credit eligibility is based on your personal credit score and history. Generally, it takes two to three years to build a business loan before you can consider a business startup loan. That said, there are ways you can build business credit quickly (or at least faster); For more information, read on.
How To Build Business Credit Score
You might wonder why entrepreneurs don’t use personal loans to get a small business loan. In fact, many do: 46% of small businesses use personal credit cards. But if you want to protect your assets and debts, it’s important to keep your personal and business finances separate.
What Is A Business Credit Score And How Does It Work?
Establishing a business loan can protect your personal assets from legal liability. It will allow you to take advantage of tax benefits, monitor your business’s cash flow, and simplify your accounting. Business credit cards typically have higher credit limits than personal cards, giving you more financial leverage as you invest and expand your business.
Building business credit is a process: By following these five steps, you can set your business up for success.
When setting up your business as a legal entity, it’s important to choose a structure that works for you: a limited liability company (LLC), a limited liability partnership (LLP), or a corporation. (There is no distinction between individuals and sole proprietors.) Then apply for an Employer Identification Number, or EIN. It is a nine-digit number used by the IRS for tax purposes.
Once you receive your EIN, you can use it to open a business bank account. This will help you keep your business finances separate from your personal account. (Use your EIN to apply for licenses and permits, as well as get a loan.)
Business Credit Scores (2022): The Essential Guide
The D-U-N-S number is another nine-digit business identifier created by commercial credit agency Dun & Bradstreet. This Dun & Bradstreet business credit file identifies your company and can be accessed by lenders when applying for a business loan or line of credit. Your D&B file includes basic information about your company, such as its address and phone number, as well as any branches or subsidiaries.
(Note: Equifax and Experian are business credit reporting agencies that compile personal credit reports. Fair Isaac Corporation, or FICO®, offers a small business scoring service in addition to compiling personal credit scores.)
Establishing a physical address increases your company’s credibility with both customers and potential lenders. Adding contact information such as phone number, email address and website will allow them to learn more about you and contact you if needed. Your business website and email address should be separate from your personal contact information.
A business credit card can help build credit and provide important protection against fraud. There are many types of business credit cards for different types of businesses. To apply for one of them, you must provide the following:
Best Ways To Build Your Business Credit Fast In 2023
Once you’ve established business credit, it’s important to build on it to improve your business credit profile and secure a low interest rate. Here are some ways you can do this:
Whether you’re a new business or an established company trying to improve your credit, you may have questions about how to build credit. Here are some common questions and answers that may help.
The scales used for business credit scores are different from the scales used for personal credit scores. Agencies use different formulas, with scores often ranging from 0 to 100 (such as the Dun & Bradstreet Paydex score) and FICO ranging from 0 to 300. On the Experian scale, a score of 76 to 100 indicates a business is a low-risk borrower.
To build credit, you must open accounts that report to credit reporting agencies. It is a good idea to set up at least two or three accounts (or business lines) with reporting companies. These include business loans, supplier accounts, and business credit cards.
How Long Does It Take To Build Business Credit?
Different credit scoring models emphasize different factors when compiling a score. Some factors considered are your payment history, credit utilization, and how long you’ve had the account.
Experian considers factors such as your outstanding balance and payment habits, as well as public records (including liens, bankruptcies and judgments) and basic company information from independent sources.
As mentioned earlier, the scoring system for a business loan is different from that of a personal loan, although certain factors are considered. Additionally, the information on your business credit report stays for different periods of time than on your personal credit report. Factors considered include payment trends over a 12-month period.
Business credit cards are available to most business owners with good credit. This includes freelancers, LLCs, corporations, and small or large business owners.
Business Credit Report
Building business credit is a top priority for small business owners. Whether you need to buy office supplies, pay for inventory or shipping, rent space, or pay employees, you can build your business credit the same way you build your personal credit: by making consistent payments on time and keeping your credit. Doing this will make your business successful in the future.
Ana Gonzalez-Ribeiro, MBA, AFC® is a certified financial advisor and bilingual personal finance writer and educator dedicated to helping the public in need of financial knowledge and advice. His informative articles have appeared in various media outlets and websites, including Huffington Post, Fidelity, Fox Business News, MSN, and Yahoo Finance. She founded the personal finance and motivational site www.AcetheJourney.com and authored the book Catherine B. Hauer translated the CFP into Spanish. Ana has taught workshops for non-profit organizations on behalf of the W!SE (Working In Support of Education) program in New York.
Our goal is to provide readers with current and unbiased information on credit, financial health and related topics. This content is based on research and other relevant articles from reliable sources. All its contents are written by experienced contributors in the financial industry and reviewed by accredited persons.
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Just like a personal credit score, although it’s completely different in some ways, a business credit score is critical to protecting your company’s financial assets.
From business capital to financing approvals, most business transactions require a strong credit score to tell others that you are financially sound and trustworthy.
Steps To Establish Business Credit For A Small Business
Building your credit score can seem daunting at first. However, the good news is that if you’re just getting started, you’re in a good position to implement some key steps now so your numbers look the way you want them to in the future.
Simply put, a business credit score measures your creditworthiness, or how well you’re doing with your borrowing. More importantly, lenders can help you make payments.
Personal credit scores typically range from 300 to 850 (850 is best), while business credit scores typically range from 0 to 100. Other measures include different ranges, such as the FICO Small Business Scoring Service (SBSS), which scores small business loans on a scale of 0 to 300.
Experian, Equifax, and Dunn & Bradstreet, the three major business credit bureaus, all have their own criteria when measuring your business credit score.
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At this point, you might be thinking, but I’m a new business! I can’t create a company credit card, I can’t set up a payment history.
You are not behind! It means you are in the right place to start. This brings us to our next step:
If your business is incorporated, it will have its own financial section completely separate from your personal accounts.
How To Build Business Credit
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