Your business credit score is a number with special powers. Lenders that look at it will see into the past so that they can predict the future.
While this may seem like magic, it’s actually quite an ordinary step in the borrowing process. Lenders want to see how you’ve borrowed before to understand how you’ll handle a loan if they lend you cash.
If they like what they see, they’ll more likely approve you for your cash loan or line of credit at favorable terms. But if there’s something in your report that catches their eye for the wrong reasons, you may struggle to get funding.
That’s why it’s crucial you focus on what you can do to boost this number whenever you can. Here are some tips to help you do just that.
Don’t Confuse Your Personal Credit with Business Credit
Before you get started, it’s important you know this ground rule: your personal and business credit files don’t intersect. In other words, the products you use in your personal life won’t show up in your business file and vice versa.
When it comes to personal financial products, they may have the same benefits of LOC loans as those you would find for your business. But they are reported to different agencies and calculated using other scoring methods.
This means you can’t leverage a personal line of credit to affect your business credit or vice versa.
Establish Your Startup
Your credit report relies on your ability to get a credit account from a bank or alternative lender that shares your payment history to the major credit bureaus. You’ll have trouble getting one of those accounts if you can’t prove you are a legitimate business.
Do what you have to do to put your startup on the map. This might include incorporating or registering as a Limited Liability Corporation. You should also hold a valid tax ID number.
Use a Business Line of Credit or Credit Card
Your score is a numerical representation of your borrowing habits, which means you have to set these habits in motion. Open a business LoC that reports your payment history to the major bureaus to get the ball rolling.
Once you have these accounts open, you’ll need to keep them in good standing. You can do that by paying your bills on time and always paying off your full balance.
Carrying over a balance may impact credit negatively, even if you pay the minimum balance to keep the account in good standing. That’s because part of your score calculates your utilization ratio, which shows how much of your available credit you use at any time.
A higher ratio suggests you don’t have the cash flow to pay off your bills in full and that you’re relying on credit to get by. These things don’t reflect well on your money management skills, so work hard to keep your ratio low.
Bottom Line
If you’re serious about your startup, it’s time you think about your credit score. It has sway over the types of financial products you can get for your business, so it can open doors of opportunity or slam them in your face.
There’s nothing supernatural about good credit. It’s the result of hard work and patience as you stick to good credit building behavior.
