How to Build a Great Credit Rating
Building a strong credit rating can be one of the easiest things you’ll encounter in your small business operations. First, you need to apply for a small business credit card and begin using itfor small, regular purchases - and then pay your balances on time.
Set up automatic payments or reminder systems so that you’re never, ever late. All it takes is a single missed payment to trash your credit scores - and it can take seven years for the effects to completely disappear.
You also don’t want to max out any of your credit cards, or even get close. Keeping your credit use to less than 30% of your credit limits (10% is better) will help you get the best possible credit scores and should help keep the business from getting too much in debt, too.
Make sure that creditors and suppliers can validate your business information by doing the following:
- Incorporate or form an LLC to ensure your company is seen as a separate business entity
- Obtain a federal EIN (Employer Identification Number)
- Open business bank accounts in your legal business name
- Set up a dedicated business phone line in your business name and make sure it’s listed
Don’t forget that some business credit card companies report your credit rating to corporate credit reporting agencies (see “Selecting a Business Credit Card”). These reports - if positive - will help establish a good business credit rating with the credit bureaus.
Once your credit is established and you have a specialized business credit report and rating, keep track of it using one of the many services out there. This is especially important in the age of identity theft. Click here (http://www.ftc.gov/bcp/edu/microsites/idtheft//) for more information on how to ensure that this does not happen. And remember that even careless mistakes on your credit report can create errors that take years to erase; it is your responsibility to get them cleaned up or risk a blemished - albeit accidentally - business credit report.
Even if your personal credit score is currently fair or good, or you have no credit at all, there are ways for you to build a great credit rating. There are small business credit cards designed for individuals in these categories, and obtaining one will steadily establish your business credit as you make payments on time. Once you have demonstrated financial responsibility through your business, your credit rating will continue to improve and you can often enjoy rewards such as lower interest rates and expanded lines of credit.
