When you’re just starting a business, having no business credit history will equate to “low” credit in the eyes of lenders, and as a result, your personal credit will become the basis of your business credit unless or until you starting building a separate business profile. For this reason, it’s important to care for your personal credit with your business’s needs in mind.
But this doesn’t mean you should take your eyes off building credit. Building (or rebuilding) good credit is a long game—but it might not take the length of time you think. You can boost your credit score in as little as six months if you’re conscious about your plan of action, which starts with the five things below.
- Be on time.
It sounds easy, and it is! The number one most important thing you can do improve both your personal and your business credit scores is as simple as it gets: pay your bills on time, every time. Your payment history is the largest factor contributing to your overall credit rating. In fact, it makes up 35% of your credit score.
New businesses want to pay particular attention to their payment schedules, since the shorter your credit history, the more impact a single late payment can be. Luckily, with the availability to set up payment reminders and auto payments, this should be a snap.
- Pay down what you owe.
Following payment history, the next best way to impact your overall credit score is to reduce the amount you owe. Amounts owed, or credit utilization, has a 30% impact on your FICO score.
Your credit utilization ratio is influenced by the percentage of available credit your business has outstanding. Ideally, you should try to keep that number as low as possible, close to or less than 30 percent. For example, if the total credit limit for your combined business accounts is $10,000, you should aim to carry a maximum total balance of no more than $3,000 at any given time.
One quick hack for keeping your outstanding balances low is to make multiple payments per month, instead of waiting until you’ve reached the end of the month or are close to your credit limit before paying off an account.
- Bump up your credit limit.
If you’re not in a position to reduce the amount of credit your company carries on a monthly basis, consider increasing your credit limit to improve your credit utilization ratio. You can achieve this by opening additional lines of credit or requesting a higher credit limit on your current accounts.
- Separate your personal and business credit lines.
Business accounts should always be established under the business’s name and tax identification. Otherwise your activity on these accounts—on time payments and appropriate utilization, for example, won’t help to improve your business credit rating down the line (and boosting your business’s credit rating is the ultimate goal).
The information provided to credit bureaus for business credit is given voluntarily, which can make obtaining credit for your small business a little tricky. Lenders and other businesses aren’t required to report your payment history or any other information. This can mean that establishing good business credit can take time. Making sure that all your accounts are categorized correctly and separated for their various uses is one way to help achieve positive credit for both your personal and business scores.
As you seek to establish your business credit rating, make sure that you’re using your Employee Identification Number (EIN) and not your social security number to open business accounts.
- Keep an eye on both your personal and business credit reports.
Most people know the importance of monitoring their personal credit report for erroneous information. But if you’re a small business owner with an established Employer Identification Number (EIN), you need to continuously monitor both of these reports for errors and false claims, which can have dramatic impact on your ability to secure financing.
If you’re having trouble getting approved for a small business loan and aren’t sure why, take the time to comb through all of your available credit reports—business and personal—to check for incorrect data. Equifax, Experian and Dun & Bradstreet are the three bureaus you want to monitor for business credit.
While there’s no quick fix for raising your credit rating, ultimately your credit score measures the likelihood of your ability to make on-time payments and fulfill the obligations of a loan. That’s why the first two tips here alone influence more than half of your personal credit score. To lock in a great credit score, your most important job is to be a good borrower. By exercising healthy habits and correct any mistakes you may have made in the past, you’ll be showing your credit the proper care it deserves.
Source: B2C
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