Having a high business credit score is always better than having a low score, as it provides you with more flexible financing options and opportunities to expand or evolve your business to adapt to new market shifts. However, new businesses always start out with little to no credit history. So it pays to know the top ways to build business credit quickly, especially if you want your business to thrive rather than just survive. As with personal credit scores, which are derived from FICO scales and measurement metrics, business credit scores are calculated by looking at the following:
Payment history: Regarding bills for rent, utilities, and credit card paymentsExpense history: Businesses that spend a lot of money frequently have lower credit scores than businesses that spend money regularly but modestlyRepayment pattern: If a business pays down its debts and bills regularly, it will have a higher credit score
Furthermore, business credit scores are compiled by three major credit bureaus, two of which also compile personal credit scores: Experian and Equifax. The third business credit bureau is Dun & Bradstreet. The big thing to remember is that business credit ultimately increases or decreases based on the same financial principles as personal credit. If you are responsible and trustworthy with your finances and don’t overextend your finances with risky loans or purchases, your credit score will gradually go up. The reverse is true if you are irresponsible or untrustworthy with your finances. Note that your credit score will go up even more quickly if you use all of these strategies in conjunction with one another, instead of focusing on just one or two. Fortunately, it takes only a few minutes to apply for an EIN. You can do so on the IRS website. Registering for an EIN is free as well, so there’s no reason to delay doing this. It’s meant to keep your personal and business finances separate, both for building credit history and for making taxes easier at the end of your fiscal quarter or year. Open a business bank account at any local branch or with the bank that also manages your personal bank account(s). This can come in two forms: a business credit card or a business loan. Business credit cards are best for regular expenses, such as purchasing office supplies or equipment for your enterprise. Business loans are best for purchasing office space or making larger buys, especially for expansions. Either way, get at least one business line of credit and use it to show lenders that you can be trusted. If you can’t qualify for a regular credit card, consider a secured credit card. These require security deposits, but they don’t have credit score requirements. As a result, they can be a good way to start building credit if you have no business credit history yet. For example, say that you have a business credit card and take out $5,000 in office supplies for a new office space you are renting from a commercial landlord. After making your purchases, try to pay down the entire $5,000 balance before the end of the billing cycle. This shows the credit card holder that you are very trustworthy when it comes to credit, and this will significantly bump up your business credit score. Loans work the same way. If you pay them down aggressively, such as by making more than the minimum payment and paying down the full loan balance before the term ends, your credit score will increase more than if you just made a minimum payment. Another reason not to make minimum payments is that you’ll cost yourself more money in the long run through interest accrual. It’s important to use these kinds of lenders because they send regular updates to credit bureaus that will, in turn, update your credit score as soon as they get new information. If you use a lender that doesn’t report to credit bureaus, the bureaus will still eventually get information about your loan, but it could take many more months. Why? Because the more things you purchase from suppliers, the more business expenses you’ll have on your record, and the more your business credit will build up. As you cultivate positive relationships with your vendors and regular suppliers, you’ll receive discounts on orders, too. Most important of all, a more consistent purchasing history looks better on your credit report and can lead to a better credit score overall. Then we determined the best ways in which you can show credit bureaus and lenders overall creditworthiness and trustworthiness in the areas of finance and lending. We compiled these into the tips above for easy perusal. However, remember that building your credit involves leveraging all of the above strategies, not just one or two.
