Building a strong business credit profile plans and protects your business’s financial future. The following steps are a basic outline of the process and procedures of building your business’s existing credit.
To learn how to initially create business credit, see Reputation is Everything: The Importance of Business Credit; and How to Credit for Your Business.
1. Maintain separate business and personal information and credit accounts :
As a business owner, it is easy to involve your personal finances and information with business transactions. Your personal credit score may be used as a reference of your business’s qualifications and credibility. Prevent any financial liability or consequences and create a professional profile for your business by keeping business funds, addresses, and other information separate from all personal records.
2. Keep information up-to-date with credit bureaus :
Banks and lenders report your financial history to credit bureaus for authorized lenders, creditors, suppliers, and even customers to view. Any negative or positive events regarding your business credit are public. Lenders monitor your business credit report to determine your entity’s trustworthiness to handle loans and other finances. Update addresses and phone numbers with credit bureaus to prevent any miscommunications. Keep financial information current.
3. Establish and maintain lines of credit with vendors/suppliers :
Forming lines of credit with suppliers is beneficial for two main reasons: (1) a good business reputationand relationship with suppliers can earn you flexibility on purchase terms and (2) it creates a positive report on credit bureaus. Creating lines of credit with about five main vendors of your business and managing the accounts appropriately will create a good reputation in the lending and supply world.
4. Make payments on time, or early if possible :
Paying your bills on time proves reliability and effective management of your business and finances. Late or missed payments, frequent or rare, can severely harm your credit score and ultimately damage your business credit profile.
5. Borrow responsibly :
Do not borrow more than you can repay. Business credit is used to create lines of credit, which are types of loans that can be used at later times for emergencies, big purchases, etc. There is no need to borrow an unreasonable amount of money. Make it easier on yourself to make payments that are within your budget by only borrowing necessary funds.
6. Borrow from lenders that report to credit bureaus, like Experian, Equifax, and TransUnion :
As previously state, lenders use reports on credit bureaus to determine your business’s trustworthiness. Vendors and customers are also able to view your public business credit score to decide whether or not to use your services. Almost 50 percent of borrowers get denied for business loans because of their poor business credit score. Monitor your score on credit bureaus and make sure your reports are positive.
Building business credit may seem unnecessary or overwhelming, butif you have basic management skills you can easily achieve a good business credit score. First impressions matter. The same applies when relationships with lenders and other third parties that directly affect your business. Make a lasting impression by keeping business information current, paying on time, not borrowing unreasonable amounts of money, and frequently monitoring your credit score to make necessary financial adjustments. Represent your business well by following these steps to building a strong credit profile and professional reputation.
Disclaimer: This is not intended to provide legal advice and nothing construed herein will be considered legal advice. No attorney-client relationship is established between Masteller Law Firm, PLLC and you by viewing this article, associated articles, blogs, or videos.
