At Advanceit, an important area we look at when funding our clients is the business credit score. This, of course, lets us know your company’s ability to pay back the advance. Know that there are many factors that affect your business credit score and it’s based on more than just whether you pay your bills on time. Your score can be affected by:
- The total amount of credit you have with the bank or credit cards,
- How long you’ve been using credit,
- How many inquiries have been made on your credit profile
The mistake many business owners make is using their personal information to apply for business credit, leases and loans. By doing so, they risk having a lower personal credit score. As a business owner, you have to be aware of two things:
- Using your personal credit for your business activities will negatively affect your personal credit. A business receives a lot of credit inquiries into their credit profile by suppliers, clients and other companies. If you tie your personal credit line towards your business, the number of inquiries made into your personal profile will double and raise flags. Because business credit inquiries are not distinct from personal inquiries, your personal credit report will be negatively affected.
- Your business score is separate from your personal credit history. Using your personal credit history to apply for a business credit, you won’t be able to build your business credit score. This is because a business is considered a separate entity and without any history, it will be difficult for banks to verify your business score as your personal credit history is tied to it.
To improve your business credit score you can do these things:
- Incorporate your business. One of the smartest legal moves you can make when starting your business. When you incorporate your company, you are creating a legal entity that transfers your personal responsibility and legal liability away from your personal finances.
- Verify your commercial Equifax score. Make sure that the all correct information is listed including billing address, that all credit cards and loans are under your business name, find out who has accessed business file and identify any delinquent accounts or missed payments.
- Apply for a commercial credit card. Link your business account to a business credit card. By working to establish your business credit, it will make it easier for you to apply for a business loan. Never be the personal guarantor to your company’s credit card account, and you should not be putting any of your personal information such as personal address or social security number.
- Open a net 30 account with your suppliers. Net 30 accounts are very similar to a credit line but offered by your vendors. Your supplier is allowing your business the ability to make purchases and pay it off at the end of the 30 days. Any delinquent accounts are reported to the credit bureaus, so it’s best to be diligent on your payments. If you have a great relationship with your supplier, this is the best way to improve your credit score and history.
- Build a good relationship with your business landlord. As part of the credit application process, the creditor will ask for references. If you’ve paid your rent on time, your landlord can become your strongest ally during the application process as they will make a great reference for you.
As any businessman knows, you need money to make money. Financial institutions will only offer credit to those who are deemed a low risk for loan defaults. With a great business score, you are helping build your credibility, and gain access to funds that will help your business grow.