Maintaining a high personal credit score is something we all strive for. But in the small business world, it’s just as important to keep your company’s credit score as high as possible. Business credit bureaus use a scale of 1 to 100 to determine the credit worthiness of a business, unlike the 300 to 850 range for individuals.
Here are 6 basic ways to increase your business credit score to help you enjoy a prosperous future as an entrepreneur:
1. Separate your business activities from your personal life.
If you operate your business as a sole proprietorship or partnership, you might be doing yourself a disservice when it comes to your credit. Consider establishing a formal legal entity structure like an S corporation, C corporation, or LLC. Separating your business activities from what you do in your personal life can help boost your business credit score. Without a legal entity in place, your business credit may be greatly impacted by your personal finances and spending habits.
2. Make all of your business payments on time.
It’s common sense, but you should always pay the bills incurred in your business on time. Whether you have multiple business credit cards, small business loans, or any other types of regular expenditures, be sure to take care of these payments when they are due. And don’t just do this once in a while – do it all the time. Late payments can bring down your business credit score.
3. Use business credit.
As with personal credit, you can beef up your business credit score by actually using business credit. This means going out and spending money with a business credit card. This may be difficult to do in the startup stages of a company when new entrepreneurs are often financially strapped, but consistent use of credit over time is what it’s all about.
4. Minimize your business debt.
Debts are never a good thing. It’s common for small business owners to be in debt at times, but if you can manage to reduce your debts, it’ll help your business credit score by demonstrating that you are making wise financial decisions. If you have to take out a loan, having limited debts is a big plus in your favor to actually get one. Limiting your debts reduces your credit utilization which, in turn, can increase your credit score.
5. Add new lines of credit to your business.
Consider obtaining new lines of credit for your small business, especially if you’re only working with one or two of these. Having no or few credit accounts can have a negative effect on your business credit report.
6. Keep a close eye on your credit report.
Be sure to check up on your credit report on a regular basis. Experts say to view it once a year, but it’s often better to take a peek even more often than that. Correct any errors you find, and make note of any issues the report indicates that can help you improve your business credit score in the future. Obtaining this report is very inexpensive – if not free.
To ensure you’re handling your small business accounting and finances to maintain a proper business credit score, consider partnering with the accounting pros at 1-800Accountant. Call 1-800-222-6868 or go to the “Services” page on www.1-800Accountant.
Photo credit: The photograph included in this blog post is used with permission via the Flickr Creative Commons license.