Understanding Business Credit
Business credit is essentially a report card for your company that shows lenders, suppliers, and partners how reliable you are when it comes to paying your bills. In this companion, you will learn what business credit is, why it matters, and clear, actionable steps to help you build and maintain a solid business credit profile.
What is Business Credit?
Business credit is a record that tracks your company’s financial reliability and creditworthiness, separate from your personal credit score.
Definition: A system that rates your business’s ability to manage debt and make payments on time.
Benefits include:
Easier access to loans and lines of credit.
Better financing terms from vendors, suppliers, and banks.
The ability to protect your personal credit by keeping your finances separate.
Steps to Build and Maintain Business Credit
Open a Dedicated Business Bank Account:
Use an account solely for business transactions. This clear record of your finances helps in building credit.
Apply for a Business Credit Card:
Choose cards that report to business credit bureaus. Use the card responsibly and pay off the balance in full each month. Always remember to check the interest rate.
Pay Bills on Time:
Set up reminders or automatic payments so that you never miss a due date. Timely payments enhance your credit history.
Keep in mind that your goal is to pay the credit card off monthly with business profits and/or reserves. With a business credit card, remember to have a plan for how what is spent will be replaced by profits. Don’t gamble with it by investing/using funds without a business plan for the return on investment.
Monitor Your Business Credit Report:
Regularly check your credit report through trusted services to ensure accuracy and address any errors immediately.
This is also extremely vital if your business is a sole proprietorship and connected to your SSN.
Data Breaches: Follow the steps here if you have not yet set up a system to monitor and protect yourself against fraud.
Establish Trade Lines with Vendors:
Work with suppliers who report your payment history to business credit bureaus to further build your profile.
To put it simply, your business credit score is like your company’s report card. A high score shows that your business is responsible, which makes it easier to secure funding or favorable payment terms in the future.
For those looking for business-friendly banking options that can help build and monitor your credit, consider Novo which allows you to open a business checking account, monitor growth, and extends an offer for a business credit card. Their modern banking solutions are designed with entrepreneurs in mind, making financial management easier.