Establishing business credit helps protect your personal credit and assets against potential debt or financial threats that come with owning and operating a business. Financial institutions and investors are always seeking to minimize risk and have a great business credit score is better to have before you need it and it makes your business look good.
Personal Score vs. Business Score
Although they are similar in concept there are some key differences between business credit scores and personal credit scores. Personal credit scores and reports are more importantly private. Scores range from 300-850 and are maintained based on your SSN. Business credit scores are public, they range from 0-100 and are maintained by the company’s EIN, name, and address.
Information is collected on the business’ financial and payment history. Because there is no standardized score (e.g., FICO) each bureau follow their own method of collecting and maintaining data.
How to Establish Business Credit
Legally form/establish a business and apply for an EIN from the IRS.
Keep personal and business accounts separate and apply for a business credit card that is solely used for business expenses.
Work with vendors who report to credit bureaus. Vendors and lenders are not required to report to credit bureaus so asking if they report and how often can save you a lot of time and frustration.
It’s actually better to pay early than it is to pay on time but at the very least, pay on time.
Check your reports regularly. Mistakes happen, experts suggest contacting the credit reporting bureaus directly to resolve any errors found on your report.
Following these steps will help you build and maintain a healthy business credit score and keep track of what should be on your report.
How to Obtain a Report
While you cannot receive your business credit report for free, there are companies that bundle all three reports from the major reporting bureaus which are Experian, Dun & Bradstreet, and Equifax. You can also purchase each report separately on each company’s website.
For more information on how to establish business credit, contact Navigate Firm today.