Whether you are a sole proprietorship or partnership, establishing good business credit could be the first important step towards creating a diving line between your personal and business finances. Having a good credit profile for your business not only helps you secure a loan of credit or loan but also helps you attract more business. Building good business credit offers several benefits including a separate credit history from its owner, business benefits of having good credit, and better payment terms, etc.
If you are wondering how you can build credit for your small business, there are several proven ways you can try and some of them are listed below. The following steps for building good business credit can have a significant impact on your overall business credit history.
Choose a Right Business Structure and Register it with Authorities
Establish your business as a sole proprietorship, corporation, partnership, or limited liability company. And then complete all the important legal requirements to register it with local authorities. It will ensure that your business is established and registered properly to start its operation as a separate business entity.
Get your EIN
Employer identification number or EIN is just like a social security number to your business. It is the number that legal authorities use to identify your business structure. In simple words, it is something most important when it comes to pay taxes or report to credit beuros. It serves as a corporate ID that you will use to file tax, open a business account or apply for other licenses and corporate benefits.
Get a Business Credit Card
Getting a business credit card is one of the best ways to build good credit for small businesses. It could also be a good initiative to start business relations with a banking partner that may be beneficial in the near future when you need a small business loan or line of credit. You should choose the right credit card for your business as they usually come with financial benefits like 0% APR, balance transfer, cashback, and free rewards, etc. It doesn’t just help you build business credit but also helps you save a lot of business bucks in terms of paying no interest payments and earning free rewards. However, a business should use a credit card responsibly to establish business credit instead of building credit card debt.
Establish Trade Lines with Vendors & Suppliers
If you often buy raw materials, supplies, or goods from vendors and suppliers, those purchases can help you build business credit. When you pay them in a timely manner, they usually allow you to make payment within a couple of days right after receiving the inventory or ordered materials. If you have such suppliers and vendors who offer trade lines, you should ask them to report your payments to business credit bureaus. As a result, you will see a significant boost on your business credit scores. However, you should be making payments before the due date to establish a good credit history.
Make payments on time
Since each credit bureau uses different scenarios to calculate and define business credit scores, making payments to creditors in a timely manner could have a significant impact on your overall credit history as a business. Experts say that those who pay on time or even early, are better able to earn perfect business credit scores. Whether it is your credit card payment, utility bills, or payments to creditors, try your best to pay them all in a timely fashion to establish strong credit scores. Credit limit utilization is another important factor. So, try to limit your spending to 20% to 30% of your available credit limit.