Businesses, like people, are rated on how responsibly they use credit. If you’ve ever used a corporate credit card, taken out a business loan or paid a vendor on credit, your business may already have a credit rating.
As a business owner, it's easy to blur the lines between your personal life and your professional one. But when it comes to credit, it's better for your company to have its own commercial rating. Unlike personal credit reports, which are covered by consumer privacy protections, business credit reports are much more publicly available. Anyone willing to pay a fee for the report may request to see your business' credit history.
Customers, vendors, suppliers and financial institutions often look at business credit reports when determining what financing costs, credit card interest rates, insurance premiums, rental and supplier terms to offer a company. This is why it's beneficial for your business to maintain its own credit history and rating, even if you don't plan to seek out commercial loans or other business financing.
How Commercial Credit Ratings Work
Business credit ratings are issued by national credit reporting bureaus such as Dun & Bradstreet (PAYDEX®), Experian (Intelliscore PlusSM), Equifax Business Credit Reports and FICO® Small Business Scoring Service (SBSS). The bureaus will monitor the credit activity of your business and compile a report which takes into account the amount of business credit you have, your payment history, the age of your credit profile and other information such as business location, industry, number of employees and any outstanding legal actions.
Credit bureaus parse this information into a single numerical score representing how likely your business is to repay its debts. But unlike FICO scores, which range from 350-800, business credit is measured on a scale of 0-100, with a score of 80 or above considered ideal.
How To Build Commercial Credit History
Fortunately, it's easy as 1-2-3 to declare your business as a separate financial entity with its own credit profile and rating.
Step 1: Register Your Business
The first step toward establishing a credit profile for your business is to incorporate your company with the appropriate government agencies. Many small business owners choose to register as a Limited Liability Company (LLC) as it legally separates an owner's personal finances from those of the business. Once you've incorporated, the business may apply for a Taxpayer Identification Number (TIN) with the IRS. This will allow you to register with credit reporting bureaus.
Step 2: Open a Credit Profile
Verify whether your business already has a credit file open with one of the national bureaus before applying for a new one. If you already have an open credit profile, review it for accuracy and completeness to ensure lenders are making decisions based on correct information. Any changes to your business, such as address or number of employees may have an impact on your credit rating.
Step 3: Apply for a Credit Card
Once you've established a unique financial identity for your company, the best way to build business credit is to use it responsibly and often. Open a business checking account and apply for a business credit card. Make regular purchases using your card—even if no balance is carried. This will build up a payment history and contribute to the business' credit score. Repaying debts on time and in full is one of the best ways to improve credit ratings.
Get Started With Business Credit
Building a solid business credit history now will open doors to better terms and future funding when needed. Get started by applying for the BECU Business Visa® at www.becu.org/businessvisa.
*U.S. Small Business Administration Office of Advocacy report, September 2017