Sure, you know your personal credit score and have seen your credit report. Most of us have a pretty good idea of what our personal credit histories look like. But what about your business’s credit report? Do you check it? Some of your prospective clients might just keep a copy of Dun and Bradstreet® on the bookshelf to see how your business stacks up according to D & B.

It makes good business sense to maintain a squeaky clean credit history for your company. A top-notch borrower may get lower rates and better terms than a company that looks like a lender’s nightmare on paper.

Start by maintaining separate accounts for your business and personal activities. If you’re a sole proprietor, or the only employee, it’s easy to meld business and personal expenses into one big lump.

Open and maintain a business account. Use your personal credit to obtain a business credit card. Rule of thumb: don’t spend personal dollars on business expenses. It can be a nightmare, especially at tax time.

Monitor both your personal and business credit reports. It costs a few bucks, but think of it as a low-cost form of reputation management. Your credit report can be sent to you monthly, quarterly, annually, or on request.

Get terms from vendors, then pay in advance. Businesses love early payments. Ask for “net 30” and then pay it off 15 days early. Your company credit and reputation will grow stronger.

Always, ALWAYS pay on time. A missed credit card payment can cost you, short- and long-term. Short term, you’re likely to pay a penalty fee for late payment. Long-term, a missed payment may trigger a huge leap in the interest rate your company pays, and it can take months of on-time payments to get that interest rate closer to normal.

Reduce your credit load. A credit report showing that your company owes more than you can pay is a sure sign that you need to lower your credit utilization.

The amount you owe – credit utilization – has a 30% impact on your company’s credit score*. Maintain plenty of headroom when making business purchases with a company credit card. If you max out the company plastic, you’ll have fewer options.

Apply for credit you don’t need. If you don’t need it, don’t use it. However, it demonstrates lenders’ willingness to provide business credit. Conversely, an untapped credit card still gets added to the liability column of your credit because you can access that cash any time.

Ask that the company credit limit be raised. If you pay it off regularly, chances are, you’ll get what you ask for – and improve your company credit without even trying.

Avoid “the thin file.” Having a lot of credit and not using it can actually be considered a negative when compiling credit scores. A thin file is one in which the borrower doesn’t use enough credit to generate a positive score.

You have to use credit responsibly to build a positive credit report, but you do have to use it.

Talk to a business specialist at your bank. If you own a medical or legal practice, or if you own a small company, it pays to get the advice that comes from experience. The consultation is free and you can actually learn how to reach profitability faster thanks to your business bank specialist.  

Finally, plan ahead. The absolute worst time to apply for business credit is when you really, REALLY need it. Take a more expansive view. Review your business objectives and determine how much credit you’ll need to reach those goals.

Don’t wait until the last minute. Apply now to be ready when you need it.

*http://www.myfico.com/crediteducation/whatsinyourscore.aspx

 

 


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.