Finance Basics 101 teaches us that we need a good personal credit score. It’s one of the most important economic lessons we can learn, and the earlier we put it into practice, the better.
As an entrepreneur, though, did you know you have a business credit score, too?
Once you become a business owner, you’re responsible for two sets of scores. Your personal score is still used for your home life and, occasionally, the business you own. But your company’s credit score is going to matter as you grow and expand your business. If you want to learn more about maintaining your business, kindly visit this dedicated website https://www.rapidincome.net/ for further details.
The business credit score is looked at by suppliers and banks before they agree to work with you. Suppliers may offer you better terms if your business credit is strong. Banks are more willing to approve a line of credit with lower interest rates.
So how do you build and maintain excellent company credit scores as a small or medium business owner? These three tips will show you what to do—and what to avoid doing—as you work on improving your credit.
1. Keep Tabs on Your Business’s Credit Report
If this is the first you’re hearing about your company having a credit report, you’re not alone. Many business owners have no idea that an organization like FICO is keeping tabs on their company’s finances.
The major difference between your personal and business credit is with the credit reporting companies. We know that our personal scores are ranked by Experian, Transunion, and Equifax. But our business scores are a different ballgame.
There are lots of business credit reporting companies, like D&B’s Paydex and Experian. The algorithms vary, too, with most using a 1 to 100 score instead of the 800 we’re used to. But others use a 101 to 992 rating, so it’s hard to know where you stand at all times.
By working with financial tools like Mint, it’s easy to track your small or medium business credit scores regularly.
In order to utilize your credit score effectively, find out which companies your main suppliers check. Then, focus on building your business credit with those companies.
2. Follow the Personal Score Categories
The ranking algorithms may be different. But the overall categories are quite similar between personal and business scores.
Good financial habits are across the board. By following the things you know are important to your personal score, you’ll boost your business score, too.
Building a Credit Score
This is where knowing the basics of finances comes in handy because you know what to do and what to avoid.
These include the foundations of credit building, such as:
- Paying your bills on time or early
- Keeping your credit utilization low
- Building a lengthy positive credit history (which can only be done with time)
- Using your credit cards in healthy ways, like paying more than the minimum balance each month
- Avoiding closing out old business accounts, even if you don’t use them
In other words, if it’s good for your personal score, it’s good for your business rating.
However, sometimes, your business goes through slow periods. When working capital is in short supply, you don’t want to let your bills get behind and mess up your hard work. But taking out a long-term loan for a short-term financial need doesn’t make sense, either.
Learn about the other alternatives you have, like invoice factoring.
3. Work With Vendors Who Report to Bureaus
A lot of vendors work with debt collection agencies and report businesses that don’t pay their bills. But not all suppliers and vendors report good experiences with their clients.
While you’re reviewing your business credit report a few times a year, check to see if there are any vendors not listed. If you have a good payment history with them, you can request that they report the positive feedback to a credit bureau. Click here https://richname.net/ for detailed articles regarding loans, financing and business.
Some utility companies can be added to your score manually by linking your bank account. When you pay these bills each month, it shows up on your credit report.
However, the companies don’t report to the credit bureau. You have to do this part yourself.
As you start your journey of owning a small business, it’s easy to build excellent credit by using the basics of good finances. If you’re working on reestablishing your credit after a rough patch, it will take more time.
Following these tips will gradually bring you to an excellent business credit score and all the perks that come with it!