It can take a while for a small business to establish a credit rating and even longer to improve one. But make no mistake, your credit rating is an essential element when you seek credit or a loan. It also helps get you approved by landlords, suppliers, and vendors.
Business credit scores are available from several sources, such as FICO, Dunn & Bradstreet, Equifax, and Experian. Although each provider uses its own methodology, the following steps should improve any business credit score.
Check Credit Reports
Each business credit bureau maintains credit reports. You want to check those reports to make sure they don’t have any errors that can hurt your score. You do not have the automatic right to look at your credit reports — usually, a little money has to pass hands. The big three providers are Dunn & Bradstreet, Equifax, and Experian, and they all charge fees. You can also access your credit report through Nav.com. Check your reports for any errors and dispute them.
Establish Your Credit
What if you come up empty when you search for your business credit report? It means that you haven’t established your credit yet. Perhaps you’ve been paying your business bills with your personal credit card, a definite no-no. Naturally, those payments will be reported on your personal credit, not your business report.
You must take some steps to establish business credit:
- Form an LLC, partnership, or corporation for your business.
- Receive a federal employer identification number from the IRS.
- Create a business checking account separate from your personal one. Ensure that the account is titled in your company’s name.
- Get a new phone line just for your business, listed under your business name.
- Get a D-U-N-S number by registering with Dun & Bradstreet. It helps you secure federal grants and contracts.
Your business credit report will record credit-related transactions. It might also include certain public records and other information.
Get a Business Credit Card
This will help you build your credit profile quickly. Use it for business purchases such as travel, entertainment, office supplies, and so forth. Pick a card that offers good rewards, like high cashback rates or miles. Add employees to the card to collect rewards on their business purchases.
Use Vendors that Report Payments
Many vendors report their received payments to the large business credit bureaus. This applies when you pay on terms, i.e., 2/10 net 30, etc. You might already use vendors that extend terms but make sure they report transactions based on those terms. If not, find alternate vendors that do report payments and switch.
Pay Vendors Early
Some business credit bureaus, such as Dun & Bradstreet, give you higher marks when you pay your vendor bills before they are due. For instance, the D&B PAYDEX score tops out at 100, and you can achieve an 80 score by paying your vendors on time. However, to max it at 100, you need to pay your vendors early.
Manage Your Cash Flow with Credit
Your credit score can help you better manage your vendor relations. A good score might entitle you to better terms and lower rates from vendors. That’s a critical aspect of optimizing your operations and financing. Take advantage of the credit limits on your business credit cards to manage your purchase. These are often cheaper than alternatives, such as merchant cash advances. The more interest you save, the less of a drag on your profits.
There will be times when it makes terrific sense to borrow money for your business. For example, you might be presented with an enticing opportunity that requires more cash than you currently have available. Alternatively, you might use business loans to help smooth out volatile or seasonal sales. You can use loans to grow your business and expand its reach.