Business Credit Basics
In order for your company to thrive, it is critical to establish a business credit identity separate from your personal credit identity. Once that credit identity for your business has been established, the next step is to continue to build your business credit rating. You can minimize your efforts, which will mean it will take quite a bit of time to improve your business credit rating, or you can maximize your efforts, which will result in much quicker results.
Similar to your personal credit, your business credit profile is made up of many factors, including how long you have been in business, the size of your company assets, and the history of your payments. By consciously focusing on each of these components and making smart decisions about how to improve each of them, you can continue to build business credit and improve your overall credit rating.
Passive Credit Building
From year to year, as your company continues to operate, you are positively impacting your business credit score, whether you know it or not. Because many large companies (including financial institutions, credit card companies, utility companies, and some government agencies) report your payment history to Dun & Bradstreet and other credit bureaus, you are building your business credit file just by paying your monthly obligations. This information cannot be kept hidden, and other companies may access the information in your file by paying a fee to the credit reporting agencies. In order to ensure that you are building a positive credit profile, it is important to maintain on-time payments, a sound balance sheet, and to avoid legal action against you. Each of these components reflects positively on your overall credit rating.
Active Credit Building
By utilizing certain strategies that have been proven to positively impact your credit rating, you can improve your score much more quickly.
How to Build Business Credit - The Building Blocks
No single aspect of a company's credit profile can determine or undermine that company's credit worthiness. Each of the following factors influences a company's overall credit score:
- Paying all monthly obligations on time
- Maintaining a solid balance sheet
- Avoiding legal troubles
- Establishing business credit and sustaining a strong business identity
More emphasis may be placed on one of these factors or the other by potential lenders when they evaluate your credit history. For instance, whereas a potential vendor will be interested to see your payment history on your monthly obligations, when applying for a commercial loan, the lender will be most likely to emphasize the importance of a solid balance sheet. Finally, your litigation history is more likely to be an issue to any insurance companies that are attempting to rate your policy.
