How to Build a Good Business Credit Score

As it is the case with personal credit, good business credit will help you get lower insurance premiums or interest rates. It takes time to build your business credit. But in the end, it will open many doors to great amounts of capital. Some of the benefits include getting easy approval for a lease, business loan, or a line of credit. Today, we will talk about the best ways to get your business credit building membership.

After you start a business, the next step to guarantee success is getting a business credit card. And with a good credit score, you can enjoy more benefits from your business credit.

What is Business Credit?

This is the first question we have to answer. Think of it as a business credit card. You build a personal credit based on your financial history. And you build a business credit based on the business’ financial history.

Ask yourself these questions. How do you handle credit cards? Or loans? How do you handle the line of credit? Or let’s talk about trade lines from suppliers. Personal credit works with your social security number. And the business credit works in correlation with your employer identification number, EIN.

In the end, your business credit shows whether your business is a trustworthy borrower.

Why It is Important to Have Good Business Credit?

Your business credit score will determine how much you pay for any financing. When you have a high score, you can get competitive interest rates for loans and other financial products.

There are many reasons why you might need financing. For example, short-term loans can cover hiccups or cash-flow issues. Long-term loans can help you invest and build your company, look for technological improvements, and more. Here some benefits of a good business credit building membership.

You position your company to get favorable payment terms with vendors and suppliers
You reduce the number of times you have to prepay for products
It will allow your company to get better interest rates

Calculator for Business Credit

How do banks and financial institutions calculate your business credit score? Agencies collect information about your company. In the beginning, your business score will be low. But as you build your business, and you process good and positive business actions, your credit score will go up. For example, paying loans back on time.

Here are the factors that determine the business credit score calculation:

Business and industry data, including the size of your business, history, and how risky is the industry you operate in
Credit history, how much you utilize, and whether you pay on time or not
Credit quality or sometimes referred to as credit depth, which shows what you use your money for

Best Ways to Build Your Business Credit

Register Your Business

Let’s start from the beginning. The moment you open your company, you need to register your business. The length of your business’ history plays a large role in the business credit score. Register your business as soon as possible. You can choose different business structures, including:

Limited Liability Partnership: A legal partnership where the individual partners are not responsible for the other partner misconduct
Limited Liability Company: This business model offers protection against liability, and it also separates your business and personal finances
S-corporation: This is a closely-held corporation that allows you to pay income taxes at individual tax rates, not corporate
C-corporation: You get complete legal and financial separation between business and individual accounts, and they are standalone legal entities

Make sure to choose the plan the works best for you.

Register address and phone number

Now that you’ve chosen a business plan, it is time to add a business address and phone number. The contact info will help you list your business in various directories.

Double-check the information. Credit reporting agencies will check the info. And make sure to keep a good relationship with the phone company. Sometimes, agencies consider how you pay your phone bills as well.

Get an employer identification number

It is time to apply for an EIN or an employer identification number with the IRS. In some cases, you can operate using a personal SSN. But for a good business credit building membership, you need an EIN.

This unique nine-digit number is directly tied to your business credit score. The good news is you can easily apply for an EIN online.

Open a bank account

The credit company agencies will consider the credit history of your business and the status of your bank accounts.

With a business bank account, you can easily separate your personal and business expenses. Use the account for incoming funds and expenses.

Pay your suppliers on time

Your credit history is a reflection of how you handle your business. This includes relationships with lenders and relationships with suppliers. If you pay your suppliers on time, the bank sees your “mindset” and habit of paying on time.

It is also important to work with a variety of vendors.