Steps to Building and Maintaining Positive Business Credit

Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.

Whether you’re trying to get a small business loan, gain new investors, or acquire products and services from external vendors, your business credit status is a crucial element. Much like your personal credit, your company’s credit profile is used by lenders, creditors, vendors, and service providers to determine your eligibility for products or services and the level of risk. As you might imagine, maintaining a positive standing is essential to the continued success of your business.

While it can take time to build and maintain a positive financial track record for your business, there are simple steps you can follow to make the process more manageable. Continue reading to learn more.

Establish Business Credit

If you’ve never had any financial accounts under your company name in the past, chances are you don’t have any business credit. Therefore, the first step is to establish credit for your company. If you haven’t done so already, register your business and decide on an entity (LLC, Partnership, Incorporation, etc.). If you have employees, you’ll also want to register with the federal government for an Employee Identification Number (EIN). These steps are necessary so that you and your business are viewed separately when it comes to finances.

Open a Banking Account

Next, you want to open a checking and savings account under your legally registered business name. This step again separates your personal from your company finances. Once opened, ensure that you don’t use these accounts for anything other than business-related purposes.

Apply for a Credit Card

Until you’re able to get approved for a loan or sign your first vendor contract, you’ll need a company credit card or two to start establishing credit. Do your due diligence in applying for credit cards to find a product with low-interest rates and minimal fees. While your lack of business credit might result in a small line of credit initially, making timely payments can increase your limits in months.

Work With Vendors That Report Payments

As you shop around for vendors to use for your business, try to enter contracts with service providers that report payments to the major credit agencies. The more financial accounts you can have reporting (in a positive manner) on your profile, the easier it becomes to boost your company credit.

Make Timely Payments

Once you’ve acquired a few business credit cards and reputable vendor contracts, you must maintain them by making timely payments. Whether you have an American Express or a Home Depot credit card, ensure you’re paying these statements on or before the due date. If you’re unable to repay the full amount, paying the minimum amount is recommended. There are tools, including budgeting and credit card management applications, you can use to avoid late payments, penalties, and fees.

Keep Utilization Under Control

Creditors, lenders, and service providers don’t just look to see what type of financial accounts you have and whether you repay them on time. They also assess your company’s financial profile to see how good you are at maintaining balance. If you have a business credit card that’s been maxed out and is only receiving the minimum payment, this tells interested parties that it could take a while before you repay a loan. Therefore, to keep your business credit positive, try to keep the utilization percentage under 40%. For example, if you have a credit card for $1,000, try not to use any more than $400 before paying it off.

Your business credit is an essential part of acquiring the things you need to function and grow. Failure to be responsible with financial accounts could result in denied credit applications and a higher price tag for getting the products and services you need. As such, it is highly recommended that you establish and maintain a favorable business credit profile by using the steps provided above. Though it will take time to see significant results, a history of regular, timely payments and reasonable utilization scores will open doors you never thought possible.

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