While your resolutions as a small business owner probably include things like “grow my business” or “hire my first employee,” I’m guessing “build business credit” didn’t make the list. That’s a shame because putting energy into your business credit can actually help you realize the other goals on your list!
Your business credit is one factor that lenders, investors, and credit card companies look at when deciding whether to lend you money or invest in your company. The better your business credit is, the more qualified you are for certain types of financing. It may also help you get better rates and even land lucrative business deals.
Want to build business credit but feel overwhelmed by the process?
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If your business credit is poor, or even nonexistent, make a goal this year to work on changing that.
Month 1: Check if you have a business credit report
Find out whether your business is on the radar of major business credit reporting agencies. There are three primary U.S. business credit bureaus:
- Dun & Bradstreet
If you can’t locate a credit report with these entities, it may be because you haven’t yet obtained accounts that are reported to these bureaus.
Month 2: Check your credit scores
If you didn’t find a report for your business with any of the credit reporting agencies, then skip this step and come back to it in a couple of months after you’ve taken the next steps.
But if you do establish you have a business credit report with these agencies, you might notice that you’ve actually got several business credit scores; each bureau can create its own score for your business.
The tricky thing is that your score will be different with each, because each has its own proprietary scoring system, and because not every lender or credit card company you borrow from reports to the same agencies.
If you have a small business credit card, for example, your monthly payments might be reported to Experian but not the other two. It’s unlikely you’ll know which reports or scores lenders are going to check, so staying on top of your scores from all three major bureaus is helpful.
Month 3: Review vendor reporting
It gets more complicated (not really). You likely have accounts with vendors or suppliers who allow you to pay on, say, net-30 terms. Some report those payments to business credit bureaus, some don’t. No company is required to report to credit bureaus, which means that your decades of on-time payments with the office supply store down the road may have done nothing to help you build your credit.
First, start by finding out whether the vendors you work with do report to credit agencies. Simply looking at your business credit report will tell you this (sort of). Since business credit reports don’t list the names of companies that report, you may have to surmise which is which based on account details.
If your vendors don’t report to credit agencies, consider switching to vendors that do. Opening tradelines with vendors that offer you payment terms like net-30 and that report those payments to credit bureaus is the first step to building your credit history. As you pay your bills on time, you will begin to build up your credit history and scores.
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Month 4: Clean up your report
It doesn’t always happen, but sometimes there are discrepancies on your business credit reports. Maybe you closed a business credit card three months ago, but it still shows up as open on your report. Or worse, accounts that belong to a different business could appear on your report.
It’s important to regularly monitor your business credit report to ensure it’s accurate. If it isn’t, the following links will tell you how to report errors:
Month 5: Apply for a business credit card
It’s wise to have a separate credit card for business expenses rather than using your personal card. It will not only help you build your business credit over time, but it will also make filing your taxes easier.
Look for a card that has features that are important to you, whether it’s:
- No annual fee
- Rewards (travel or cash back)
- Low interest rate
- Employee card controls
Remember: you’ll likely continue to improve your credit if you pay your credit card bills on time, and when you can, pay in full.
Month 6: Pay balances in full
Certainly, this should be an ongoing practice, but if you’ve just been paying the minimum due on your business credit cards (if you have them), start working toward paying off the full balance before the due date each month. Not only will this help you as you build your business credit, but it will also reduce or even eliminate those pesky interest costs.
If you can’t afford to pay your balances in full, consider where you’re charging expenses and see if you can pull back to better fit your available budget.
Next steps to build business credit
After you’ve taken this journey, you should be in a great position to qualify for financing, should you decide to apply for a small business loan or line of credit. Doing so can allow you to expand into bigger office space, buy more inventory to meet growing customer demand, or hire more help.
And if you’re not ready for financing, you’re still in a great place. Some potential clients (particularly for B2Bs) will check your business credit before deciding to do business with you. If they get a glowing credit report, you’ll win the business!
Either way, continue to monitor those business credit scores so they grow with your business.