You’re already well aware of the fact that you have a personal credit score. Based on a scale that ranges from 300 to 850, your score determines your creditworthiness. The higher your score, the better your chances of getting approved for financing and obtaining a favorable interest rate.
What you might not know is that if you’re starting a small business, your company gets a credit score, too. Your assigned score is on a scale of 0 to 100, with 100 being the best. If you’re looking to increase your number, here’s what you need to know about building credit for your business.
The Importance of Your Business Credit Score
So, if you already have a personal credit score, what’s the point of building credit for your business? For one, your business score helps to separate your personal assets from your business ones. Working to improve your business score can also help you to:
- Obtain financing
- Receive more favorable interest rates and financing terms
- Decrease how often you need to prepay for products or services
The Components of Your Business Score
Most credit bureaus don’t disclose the exact formulas they use to determine your score. However, some of the factors that go into your personal credit score may also apply to your business one:
- Your payment history. Paying all of your bills on time can go a long way in building credit for your business.
- Your credit history. The age of your credit history may play a role in determining your overall score.
- Your credit utilization. Your debt to credit ratio can impact your score. The higher the ratio, the lower your score.
- Your credit inquiries. Too many inquiries in a short period can harm your credit.
Tips for Building Credit
Now that you know what goes into your business credit score, here are a few things that you can do to build it:
- Incorporate your business to protect your personal assets (one of the most common is an LLC)
- Get a federal tax identification number (EIN)
- Open a business bank account and use it for business-related expenses only
- Open a business credit card (again, use it for business only)
- Open a business credit file
Your business credit score is a critical part of your company. It lets lenders know how creditworthy you are and if you’re a good risk to assume. Like your personal score, the better your business score, the greater your odds of approval and getting a great interest rate. While building credit might not be at the top of your to-do list when you’re starting out, you should keep it in mind to help set you up for success.