You’ve got the right product and the right idea, now comes the hard part – getting your business off the ground. Of course, to do this you’ll likely need plenty of funding for a physical location, supplies, hiring staff, and other business needs. That’s where business credit comes into play. Just like a personal credit score, your business credit score will impact your business’s ability to borrow money by telling lenders whether or not the business is financially responsible. At this point you might be thinking, “How can I have a good business credit score, if my business is still in its early stages?” Luckily, we have some of the answers right here in our latest blog. Read on to get the inside scoop on what you can do to pave the way for healthy business credit:

Pay Attention to Your Personal Credit

If your business is just starting out, then be prepared to use your personal credit – at least until you can establish your business’s financial history. Until your business is able to stand on its own two legs, creditors and loan officers will be looking at your personal credit score to determine your eligibility and risk. As a result, take care to improve or maintain a good personal credit score. If you want your personal credit to be in the best shape possible, it’s suggested that you aim for a score of 700 or above, which is considered “very good.”

Set Up Your Business Structure

Of course, relying on your personal credit score isn’t always a long-term solution for your business. After all, work-life balance is important! So, if you want to separate your personal and business credit histories, you can start by choosing a specific business structure. For example, if you have a sole proprietorship, then lenders may be more likely to tie your personal credit to your business credit. On the other hand, corporations, and limited liability companies (LLCs) are considered separate legal entities with a blank slate for you to build a business credit score.

Apply for an EIN

Every business needs an Employer Identification Number – or EIN – regardless of whether or not you plan to hire employees. Why? Because an EIN is a 9-digit ID number specific to your business that will be used by credit bureaus and the IRS to track your business’s income. As a result, it’s another important way to separate your business’s payment history from your personal one and begin establishing business credit. Plus, the EIN can come in handy for opening a business bank account or applying for a business credit card – both of which are also ways you can create the divide between your personal and business finances.

Apply for a D-U-N-S Number

Dun & Bradstreet is one of the three major credit bureaus who will be tracking your business credit – and to get set up you’ll want to apply for a D-U-N-S number. Think of it like your business’s very own social security number that will be used to track its activities and payments for credit-scoring. Just like an EIN, a D-U-N-S number is also good for more than just establishing financial history. It can also be used to help you apply for business grants, loans, or government contracts down the line.

Open a Business Bank Account

Another great way to give your finances some breathing room is to set your business up with its own bank account. Opening a business bank account not only creates separation between your company expenses and personal ones, but it also opens the door for you to establish a healthy financial history for the business. Not to mention, it’s a good security measure to keep your business income independent to protect your personal finances from overspending or business liabilities.

Apply for a Business Credit Card

When you think of building credit, the first thing that likely pops in your mind is a credit card. It’s even in the name! Naturally, one of the next steps you can take to build up your business’s credit history is to apply for a business credit card and show that your business is capable of making payments on time and in full. Of course, you also want to do your research and be selective with the type of card you choose. Take some time to read the fine print and look into the various options before you commit so you can make sure that the card you pick will help build your business up instead of bringing it down into debt.

Use Credit Wisely

Setting your business up with a business credit card is not a golden ticket to good credit, it’s something you have to work for by using the credit card wisely. You know what they say – with great power comes great responsibility. Take care to create a healthy payment history for your business by making all card payments on time and in full each month. Additionally, you’ll want to pay attention to how much you’re using the card in addition to how you’re using it. Experts often recommend that you keep your credit utilization below 30% to prevent it from negatively impacting your credit score.

Don’t Forget About Vendors

Who you pay and when you pay them can be just as important for building strong credit for your business. If you work with outside vendors or suppliers to support your business needs, your payment history with them can be submitted as a trade reference to credit bureaus such as Dun & Bradstreet. As long as you have a healthy payment experience with that vendor, such as paying them on time, it can potentially contribute to a high credit score.

Monitor Your Credit

Once your business credit is in a good place, the last thing you want is for something to put you back at square one. Be sure to stay on top of your credit progress and keep any sudden drops on your radar. This way you can figure out what’s causing the damage and fix the issue as soon as possible before your score is hurt any more. Remember, the cause of a credit hit can be as simple as accidentally missing a payment or as serious as fraud.

Summary

Like a personal credit score, building good credit is a marathon, not a sprint. It can take some time and effort to get your business credit score where you want it to be, but it’s important to stay committed and to stay on top of your finances. By following some of the practices we’ve laid out in this blog, you can create a financially responsible business and have the score to show for it. Next thing you know, you’ll have opened the door to new opportunities for growth and future success!