There’s no denying the importance of business credit.
After all, it can play a major role in helping you avoid bad credit on an individual level. Because of this, it’s vital that companies constantly monitor and work toward improving their scores. This way, they can ensure they receive fair treatment from credit bureaus and lending institutions.
If you are currently financing your business with personal credit, the first step is to build business credit. Many entrepreneurs get their companies off the ground with their own financing, but as time goes on, it’s important to separate your business and personal financing. From here, it’s all about improving your business’ credit.
Establishing and maintaining business credit can seem overwhelming, but this doesn’t have to be the case. Fortunately, there are several steps you can take to begin building and strengthening your business’ credit today.
1) Establish Credit
Before you can begin to improve your company’s credit history, you must decide what structure makes the most sense for your company. No matter what structure you decide on, ensure you understand its pros and cons when it comes to protecting yourself and keeping your personal and business credit separate.
After you’ve incorporated, you will likely need to obtain a federal Employer Identification Number, a bank account for your business and a business phone. After these steps are complete, you can begin to build business credit.
2) Obtain a Company Credit Card
Applying for a business credit card is rather easy, although it is not something that should be rushed or done without thought. Although obtaining a line of credit for your company might be simpler than you think, choosing the right lender to work with and the right card is inordinately important.
In general, you’ll want to try and find a credit card that has a high limit and a low annual rate. If you’re worried about receiving a card with a large amount of credit availability, you will learn why this is an important factor in the next paragraph. Additionally, you might want to seek out a card that offers rewards. For example, some cards offer business owners “points” that can be used for rebates and prizes.
3) Watch Your Ratio
Credit experts have several suggestions when it comes to credit utilization ratios, but they generally recommend companies keep their credit card balance below 30% of its total available credit. For example, if you have a $1,000 credit limit, your balance shouldn’t exceed $300 at any given time.
Although the 30% is a guideline and not a rule, figuring out a solid credit utilization ratio for your company and sticking to it is a must. So, you’ll likely want to secure a line of credit with a higher limit. This way, you can stay at or below 30% of your maximum—protecting and building your credit.
4) Payment Timing Matters
If you’ve ever taken out a personal loan, you likely understand the value of making your payments on time. However, did you know that not all lenders report your payments to credit bureaus? If you Go to the full article.
Source:: Business 2 Community