Getting your small business up and running comes with a long list of tasks. One of the tasks to check off your to-do list has to do with getting your credit in order.
From ensuring better credit terms and favorable interest rates to creating a more stable financial future, having good business credit can be beneficial in more ways than one. Below, five tips on how to build business credit when you’re a small business that’s just starting out.
Establish your business and obtain your EIN (employer identification number)
First things first, you want to establish your small business as a legal entity before you start building business credit. This first step involves tackling all the legal aspects of creating a business.
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Start by choosing the way you’re planning on operating, be it sole proprietorship, partnership, corporation, or an LLC.
After registering your business with government entities, you can move on to obtaining your employer identification number or EIN. This number will basically serve as something the government can rely on when identifying your business.
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It’ll also enable you to start your journey of building your business credit while also making it possible for you to create business license applications and open a bank account for your business.
Open a separate business bank account
In order for you to get a business credit card and start building your credit, you will need to create a bank account that’s separate from your personal one. While personal credit cards may offer different rewards, it’s better for business owners to apply for a business credit card.
For starters, they may be more beneficial for them in terms of credit limits which tend to be higher. They also offer various business-related perks along with different reward categories. Start by obtaining at least one business card and using it every month. Still, be wary about business card usage since it’ll have an impact both on your personal and business credit score. Which brings us to our next tip…
Focus on maintaining a good credit history – both personal and business
Unlike existing businesses, small businesses do not have an established financial history. This means they’re at a slight disadvantage, especially when it comes to checking their loan eligibility. This is why it’s important for small business owners to establish and maintain a good credit history – both personal and business.
One of the ways to improve your credit score is to remove any hard inquiries from your credit report. The truth is, hard inquiries can harm your business’ credit score and cause it to decrease. To prevent that, it’d be best to turn to credit inquiry removal services from a reputable credit repair company. This can be a great way to avoid higher interest rates and shorter repayment periods. These are often a result of attempting to get financing while in financial distress.
Make payments on time or earlier when possible
Part of building business credit for your small business is developing and sticking to healthy financial habits. Sometimes, this can involve something as simple as tackling your payments on time or even earlier. When you make your payments on time or ahead of time, it shows you’re able to stick to your promises. It’s also an essential component when it comes to obtaining loans necessary for ensuring business growth.
That said, make sure to set some limits when it comes to your spending early on. Relying on your credit cards along with lines of credit is okay as long as they’re not maxed out. Consider setting a limit for spending (around 20% of the credit limit) and do your best not to go over that.
Make a habit of monitoring your business credit reports
Last but not least, do your best to get into the habit of checking your business credit reports. For starters, monitoring your credit reports year-round reduces your risk of suffering identity theft. It also lowers the chances of misreporting and fraud, while also protecting your credit by helping you avoid late payments.
Nowadays, there are plenty of options to choose from when it comes to keeping your business credit reports in check. You can rely on credit reporting services, although you may have to register with these agencies directly.
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There is also a possibility to receive notifications about any credit score changes that take place. As for personal credit monitoring, you can receive free annual reports by simply heading to the Annual Credit Report website.
Wrapping up
Building good business credit and protecting it is just as vital as establishing and maintaining good personal credit. The sooner you start, the sooner you can begin reaping the multiple benefits a good business credit score offers.