A credit score in the range of 300 to 629 is considered bad. If your credit score is in this area, you will have difficulty obtaining credit. According to recent figures, 5% of Americans have a credit score of at least 820, which is considered good.
If you’ve set up a limited liability company (LLC) or corporation for your small business, keeping your personal and corporate credit histories separate can help you reduce the impact of unfavorable events on the other.
For instance, if you have certain financial blunders that affect your personal credit history and score, they should not affect your small business credit provided you have established a clear distinction and vice versa.
What Is A Business Credit Score?
Lenders use business credit scores alongside personal credit ratings to determine if a business is likely to repay debt.
Business credit scores are based on a company’s financial history. Credit reference agencies compile a picture of your company’s creditworthiness based on a variety of data sources.
Typically, A Lot Of Weight Is Put On:
- Companies Information about the residence (length of trading, whether you meet filing deadlines, trends in financial accounts)
- Information on payment performance (have you paid invoices on time, have you repaid finance on time)
- The information available to the general public (county court judgments, any company notices in the gazette)
Below we will discuss 8 ways to build up business credit in the USA:
1. Incorporate Your Business
The business and the owner are legally the same in sole proprietorships and general partnerships. As a result, there can be no distinction between personal and commercial credit histories. Forming an LLC or incorporating a firm creates a legal entity separate from the proprietor (s).
2. Obtain An Employer Identification Number (EIN)
An EIN (federal tax identification number) is a business’s equivalent of a social security number. It is necessary on federal tax returns and when opening a business bank account in the corporation’s or LLC’s name.
Many larger firms additionally demand an EIN from their vendors in order to pay them for services rendered in order to comply with IRS standards.
3. Open A Bank Account For Your Business
Create a business checking account in the name of the legal entity. Once the account is open, make sure you use it to pay the business’s financial transactions. If you do a lot of financial transactions with a business credit card, make sure to pay the bill from your business checking account.
4. Get A Company Phone Number Set Up
Have a distinct number for your business that is in your legal name, whether you utilize a landline, a cell phone, or VoIP. Make a note of that phone number in the directory so that it may be located.
5. Create A Credit File For Your Business
Create a company credit file with each of the three credit bureaus: Experian, Equifax, and TransUnion.
6. Get A Credit Card For Your Business
Obtain at least one company credit card that is not personally tied to you or any other owners. Choose a credit card for your business from a company that reports to the credit bureaus.
7. Set Up A Credit Line With Vendors Or Suppliers
Collaborate with a number of vendors/suppliers (at least five, for example) to establish credit for your organization to use when making purchases. Request that they submit your payment history to the credit bureaus. A great example of these vendors is a net 30 account.
8. Pay Your Bills On Time
It should go without saying, but always pay your bills on time. Late payments will have a bad influence on your business credit, just as they will on your personal credit.
Advantages Of Having A Good Business Credit Score
A small firm can benefit from having good business credit in a number of ways, including:
- Putting your organization in a better position to negotiate better payment arrangements with new vendors and suppliers
- Reducing the number of times you’ll have to pay in advance for goods or services
- Allowing you to negotiate with lenders and banks for lower interest rates and loan arrangements.
- Once you’ve built up solid company credit, monitor and safeguard it the same way you would your personal credit.
Credit scores, without a question, have an impact on our financial lives. It’s critical that we approach the situation with caution.
Understanding how a credit score is calculated and what statistics show will help us cope with debt more effectively in 2021. It will also allow us to better organize our finances.