How to Build Business Credit: 6 Tips and Best Practices to Improve your Score
Like it or not, building credit is a critical part of running a successful business.
Strong credit can help you secure a business loan, negotiate better terms with suppliers, and even win new customers. It also can help entrepreneurs cover day-to-day expenses, purchase inventory, hire additional staff, and to conserve the cash on hand to cover the cost of doing business.
Please note: This is not a comprehensive list of steps and everyone’s financial situation is different. Discuss your credit with a finance professional to learn more about your specific needs.
Here are some tips and best practices to help you build strong business credit:
Establish Your Business: The first step in building business credit is to establish your business as a separate legal entity. This means incorporating or forming an LLC or other type of legal business entity. You'll need to get a federal tax ID number and to open a business bank account in your business's name.
Pay Your Bills on Time: Paying your bills on time is essential to building good credit. Late payments can hurt your credit score and make it harder to get financing in the future. Set up automatic payments or reminders to ensure that you never miss a payment.
Monitor Your Credit Score: Regularly monitoring your credit score can help you spot errors or inaccuracies that could be hurting your credit. You can get a free copy of your credit report once a year from each of the three major credit bureaus (Equifax, Experian, and TransUnion).
Use Credit Responsibly: Using credit responsibly means not maxing out your credit cards or lines of credit, keeping your credit utilization low, and not applying for too much credit at once. Lenders want to see that you're responsible with credit and can handle it well. Ensure you’re not overextending your business and that you’re able to pay back your credit debts each billing cycle.
Build Relationships with Suppliers: Building strong relationships with your suppliers can help you build business credit. Many suppliers offer trade credit, which is essentially a short-term loan that allows you to pay for goods and services over time. By paying your bills on time, you can build a strong credit history with your suppliers.
Work with a CDFI: Community Development Financial Institutions (CDFIs) like AltCap can be valuable partners in building business credit. CDFIs provide fair access to capital and often have more flexible lending criteria than traditional lenders. By working with a CDFI, you can access the financing you need to grow your business and build your credit history.
Building strong business credit takes time and effort, but it's essential to the long-term success of your business.
By following these tips and best practices, you can build a strong credit history and access the financing you need to grow your business.
