The major providers of business credit scores – Experian, Equifax, and Dun & Bradstreet – each have their own ways of assigning a score, but there are a few common indicators they use:
Understanding these indicators is the first step to understanding and improving your business credit.
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The #1 reason that traditional lenders reject most small business owners is bad credit. Building a strong business credit score brings you better rates and terms on small business loans and financing. And that’s only the beginning of the benefits.
If your business is ever hit with hard times, a strong business credit score provides a safety net by making it easy to take out emergency loans or lines of credit. On top of that, vendors and suppliers are more likely to do business with you when your credit is solid.
Your business must either be a corporation or a limited liability company (LLC) in order for it to be assigned a business credit score.
You don’t technically have an official business if you freelance or have some sort of side gig. It’s okay to declare your earnings as extra income if you’re not doing a lot of work on the side. But if you’re freelancing in a full-time capacity, it’s a good idea to separate your business from yourself to protect your personal assets from business liabilities. Applying for a single member LLC or an S-corp are both smart ways to protect your personal assets. LegalZoom can do any of this for you without the expenses of a lawyer.
This will help ensure that your business and personal finances are separated – which is the easiest way to protect your personal assets from any liabilities you may incur as a business. If someone decides to sue your business, for example, only your business assets will be affected as long as you have separated your personal and business finances.
Bank of America has solid options for this, and as a kicker, is offering $350 bonus when you sign up for your business account.
Above all else, keeping up with your payments is key to building better credit. It’s the cornerstone of credit data, and a surefire indicator of creditworthiness. These days there are a lot of tools you can leverage to stay up-to-date with your payments. Here’s what you can do:
Utilizing the methods and tools mentioned above will help you automate the bill-pay process and will put you on the fast track to building good credit.
Once you’ve mastered making payments on time, you’re ready to take your business credit into your own hands. Getting a business credit card allows you to switch common cash purchases over to card. By putting some of your expenses on a card and paying off the debt with money you already have, your credit will start to build at a faster pace.
You may find yourself staring at a low credit score not knowing what to do. Not to worry, any credit score can be fixed. Here’s how:
First, you’ll want to make sure your information is current with the three major credit bureaus, Experian, Equifax, and Transunion:
If your vendors haven’t been reporting their payments properly, you can either contact a credit bureau with evidence of your payments or contact your vendor and request that they update their reports with the bureau. Our partner, Lexington Law, can do this for you with precision, as well as a utilize their expertise on fixing your personal credit score well beyond these checks.
Second, take care of outstanding debts and start making all your payments on time. This can be a little painful if you’ve fallen behind, but it’s better to get caught up than to spiral deeper into debt.
Finally, taking out equipment loans, opening business lines of credit, and using business credit cards are all great ways to boost your credit score. They requires smart financial planning on your part, but if you can manage your payments, your credit score will rise faster than a hot air balloon on a cold day.