Everything You Need to Know About Building Business Credit

More than one-third of consumers found errors in their credit reports,  investigation finds - The Washington PostBusiness credit is essential for small business owners who want to have access to loans and lines of credit. Many business owners don’t have good personal credit, so building business credit is a way to get the financing they need without putting their personal assets at risk. Building business credit can be a bit of a process, but it’s definitely worth it in the long run. Here’s everything you need to know about building business credit with The Business Cowboy.


Why You Should Build Business Credit 

There are a few reasons why you should build business credit, even if you have good personal credit:

  1. It separates your personal and business finances, which is important for personal asset protection.
  2. Businesses with good credit scores can often get better terms on loans and lines of credit than those with poor or no credit.
  3. Establishing business credit can make it easier to get approved for financing in the future. 


How to Build Business Credit 

Building business credit is similar to building personal credit; you need to use borrowing and repayment to establish a good history. However, there are a few key things you need to do to make sure your business is registered with the major business credit reporting agencies. 


First, you need to get a tax I.D. number for your business. This can be done by completing an IRS Form W-9. Once you have your tax I.D. number, you can use it to open a business bank account and apply for a business credit card. Make sure to use the account and card responsibly by making regular payments on time and keeping your balance low relative to your credit limit. 


You should also consider signing up for a business credit monitoring service like Nav so you can keep track of your progress and make sure there are no errors on your report. 


Five things to avoid when building business credit 


There are a few things you should avoid doing if you want to build strong business credit.


First, don’t use your personal credit to finance your business. This can be tempting, especially if you have good personal credit, but it’s important to keep your personal and business finances separate. Doing so will help protect your personal assets in the event that your business experiences financial difficulties.


Second, don’t apply for too much credit at once. Applying for multiple lines of credit in a short period of time can look bad on your business credit report and can even lead to some of those applications being declined. 


Third, don’t max out your credit cards or lines of credit. It’s important to keep your balances low relative to your credit limits; doing so shows that you’re a responsible borrower and helps improve your credit utilization ratio, which is a key factor in credit scoring. 


Fourth, don’t neglect your business credit report. Check it regularly for errors, and make sure to keep updated on the latest changes to your credit score so you can take steps to improve it.


And finally, avoid using your home address as your business address. This can put your personal assets at risk if your business is ever sued. Instead, use a separate business address or a P.O. Box. 


Building strong business credit takes time and effort, but it’s definitely worth it in the long run. By following the tips above, you can establish good business credit that will help you get the financing you need to grow your business.