Pro Tips When Building / Repairing Your Business Credit Rating
Navigating the process of building or repairing your business credit report can be challenging, but with the right strategies and guidance, you can make significant progress. Here's expert advice from Clarify on separating your personal and business credit, disputing errors on your credit reports, and monitoring your business credit profile.
Establish Business Credit History Without Using Personal Credit
Building a strong business credit history independent of your personal credit is crucial for protecting your personal finances and creating a separate credit profile for your company. This section will discuss additional steps you can take to establish your business credit without depending on your personal credit.
Difference Between Personal Credit Scores vs. Business Credit Score
Personal credit scores are based on your individual credit history and usually range from 300 to 850. They are linked to your social security number. Factors that influence your personal credit score include payment history, credit utilization, length of credit history, and the types of credit accounts you have. Business credit scores, on the other hand, are specific to your business and typically range from 0 to 100. They consider factors like your business's payment history, credit utilization, and company size.
Using Business Lines of Credit
A business line of credit is a flexible financing option that allows you to access funds as needed, up to a predetermined limit. By securing a business line of credit and using it responsibly, you can demonstrate your company's financial stability. Compare different issuers and providers before you apply.
Get a Small Business Grant
Applying for and winning small business grants can provide your business with the capital it needs to grow without relying on your personal credit. While grants are competitive, securing one can give your business credibility and help you establish a strong financial track record. The type of business your operator plays a factor in winning an SMB grant.
Lease or Finance Equipment
Equipment financing or leasing allows you to acquire the assets your business needs without using personal credit. By making timely payments on equipment loans or leases, you can demonstrate responsible credit management and improve your credit. You don’t need any personal assets for collateral apart from the equipment itself.
Dispute errors on your business credit reports
Mistakes and inaccuracies on your credit report can negatively impact your credit score. Regularly review your credit reports and dispute any errors you find with the appropriate credit reporting agency. Make sure you business name and phone number are correct on your report.
Regularly Monitor Business Credit Reporting Agencies
Monitoring your credit profile with major business credit bureaus can help you stay informed about your credit score and quickly address any issues that may arise.
1. Dun and Bradstreet
D&B is a core business credit agency that issues the D-U-N-S Number, a unique identifier for businesses, and a PAYDEX score.
Check your D-U-N-S Number
Ensure that your business has a D-U-N-S Number, as it's required for many financial transactions and credit applications.
Free option: CreditSignal
CreditSignal is a free service offered by D&B that allows you to monitor changes in your business credit score and receive alerts when your credit report is accessed.
2. Equifax Business
Equifax is another major credit reporting agency that tracks credit scores and provides reports for small businesses.
3. Experian Business
Experian is a credit reporting agency that offers credit reports and scores for your business, as well as monitoring services so you can get alerts on updates.
4. Credit Karma
Credit Karma is a free service that provides access to your business credit file and credit reports from D&B and Experian.
Average Time To Build Business Credit
Building a good business credit score takes time and consistent effort. On average, it can take anywhere from six months to two years to establish a solid business credit profile, depending on your business's financial history and the steps you take to improve your credit.
FICO SBSS: The Hybrid Credit Score
The FICO Small Business Scoring Service (SBSS) is a hybrid credit score that combines your personal and business credit information. Lenders often use the FICO SBSS score when evaluating applications for small business loans, lines of credit, and SBA loans. By maintaining strong personal and business credit profiles, you can improve your FICO SBSS score and increase your chances of securing funding for your business.
FAQs about Building Business Credit
Start by incorporating your business as a separate legal entity, obtaining an Employer Identification Number (EIN), and opening a business checking account. Next, establish trade lines with suppliers and vendors that report payments to the credit bureaus, and make sure to pay them on time.
Applying for a business or personal credit card and using it responsibly can also help boost your credit score quickly. Keep in mind that building a strong credit profile takes time, so consistently following these steps and maintaining good financial practices will expedite the process.
Yes, an LLC can have its own credit score, separate from the personal credit scores of the entrepreneur. When an LLC is registered as a distinct legal entity, it can establish business credit by obtaining an EIN, opening a business bank account, and engaging in financial transactions. To build a business credit score, the LLC must establish trade lines with suppliers, vendors, or creditors that report to the major credit bureaus.
When a business is first established, it typically does not have a credit score. A business credit score is generated once there is sufficient personal credit history and financial data available for the credit reporting agencies to evaluate. To begin building a credit score, a business should establish trade lines with suppliers and vendors, apply for business credit cards, and engage in responsible financial practices, such as making timely payments and keeping credit utilization low.
To obtain a credit report for your business, you can contact major credit reporting agencies, such as Dun & Bradstreet, Experian, and Equifax. These business credit bureaus offer various credit report products, often for a fee. Some platforms, like CreditSignal or Credit Karma, offer free access to your business credit score and limited credit report information.
Down Building credit for a new business involves incorporating as a separate legal entity, obtaining an EIN, and opening a business checking or savings account. Establish trade lines with suppliers and vendors that report to the credit bureaus, and make sure to pay them on time. Sole proprietors can apply for a business credit card, and use it responsibly to demonstrate good credit management.
A DUNS (Data Universal Numbering System) number is a unique identifier assigned to your business by Dun & Bradstreet. While it's not strictly required, having a DUNS number can help. Many lenders, suppliers, and vendors use the DUNS number to check your business credit profile, and it may be a prerequisite for certain financial transactions, government contracts, or grant applications.
The time it takes to build credit as a new LLC can vary depending on your business's financial activities and credit management practices. On average, it may take anywhere from six months to two years for a new LLC to establish a strong business credit profile. This timeline can be influenced by factors such as the number of trade lines established, payment history, and credit utilization. Consistent and responsible financial practices, such as timely payments and maintaining a low debt-to-credit ratio, can help accelerate the process of building credit for your LLC.
