Today we are going to talk all about building/growing your business credit. A separate topic from establishing your business credit. (For details on how to establish your business credit from scratch click HERE to read the specific blog post I wrote on it).
As a reminder, your business credit is very important because it can help you secure funding for your business (via business loans etc) and it helps you establish credibility with vendors and other businesses you might be working with by letting them know that you can be trusted. For example, for a supplier to give you products in advance of payments they might want to know your business credibility.
Also, your business credit score (also know, as a Paydex score) is rated on a 0 to 100 scale, with 0 being the highest risk and 100 being the lowest risk. You want to stay as close to 100 as possible. A score of 80 and above is ideal (think excellent credit).
So how do you build up your business credit?
Below are some tips and suggestions to get your business credit up and running.
1. Establish lines of credit with your suppliers
This means having your suppliers give your goods that you pay for a few days or weeks later. Keep in mind that you will have to ask your supplier to report this line of credit to the credit bureaus to make sure it is documented on your business credit report.
Examples of suppliers you can establish a business line of credit with are your office supplies distributor. You can also apply for a charge card with a company like American Express that requires you to pay the balance in full every month.
2. Pay your creditors on time
Like your personal credit score, your business credit score (Paydex score) is determined by the promptness of your payments to your credits based on the terms you both agreed to. This is the most important factor tied to your business credit score.
Your business credit report will also include public records like any liens, judgements, or business bankruptcies and so you want to avoid these situations, which usually arise from yours bills not being paid on time, as best as you can.
3. Establish credit history, don't max out your lines of credit
The longer your business credit history the better it is for your credibility. From a financial habits perspective, do not max out your lines of credit and plan to pay your balances off in full each month.
4. Only obtain loans from creditors that report to the various credit bureaus for business i.e. Experian, Equifax, and Duns & Bradstreet
If you obtain a small business loan from bank, it's more than certain they will report your line of credit to the credit bureaus. However, there are many small online business lending establishments that will give you a loan and will not report the line of credit to the credit bureaus. They do not help you establish credibility and they typically have much higher interest rates.
Finally, it's very important to note that, anyone, even your customers, can check your business’s credit score as a way to see how trustworthy you are so you want to make sure you take the right steps to build your business credit and keep it in good standing!