Educating yourself on your business credit score and the importance of establishing good credit is a crucial step in achieving success as your company grows. Potential lenders, investors, and partners may look at your business credit score when evaluating your business.

What Is a Business Credit Score and Why Does It Matter?

A business credit score is similar to a personal credit score. Your business credit score indicates whether your company is in good standing to apply for loans in the first place and if so, potentially receive lower interest rates (because you’re deemed to be less risky). Credit scores fall within a range of 0 to 100. The higher the number, the lower the perceived risk. One key difference between a personal and business credit score is that business credit scores are publicly available. Since business credit scores are not covered under the Fair Credit Reporting Act, any person is able to view your business credit score without permission. Overall, If you are looking to get approved for a loan, work with potential vendors, or receive better rates, having a strong credit score can help long term with saving money and keeping cash flow liquid. Next, we’ll go over different steps to begin establishing credit for your business.

Ways to Establish Credit

The first step in being eligible to establish business credit is to incorporate your business. Incorporating a business or forming an LLC is the best way to ensure that the business is separate from the owner and begins to accumulate its own history. Once the business is incorporated, you will be able to open a business bank account. Opening a bank account makes a positive difference when managing your business finances. Having a business bank account allows you to collect receipts and write checks for expenses. You’ll also want to obtain a business credit card. There are a wide variety of options available depending on your needs. If you are feeling overwhelmed with all of the options, we recommend reading our blog post on credit card options and their benefits. In order to build a good credit score, you must make payments on time. Paying on time will show that you are reliable and can effectively manage your finances. It is recommended, at a minimum, to check your credit score on an annual basis. Doing so allows you to check for errors. In fact, a study by the FTC says, “26% of individuals noticed at least one error on their report." Should you notice an error in your credit score, you'll need to notify the commercial credit bureau who is reporting the incorrect data.

How To Access Your Credit Score

The three major business credit bureaus are Dun & Bradstreet, Equifax, and Experian. Each of these bureaus has its own method of determining your companies creditworthiness. Typically the report will include your: credit summary, public records, business credit score, and payment trends. While the price to check your credit score varies by bureau, Nav offers free credit score reports by signing up for an account.
Running a small business can be one of the most exciting things you do. With all the freedom a small business provides, successfully managing both expectations and most importantly, finances can really keep you on the right track. Here are a few tips to leverage when managing your small business finances.

Separate Your Personal Finances From Your Business Finances

It is important to know that blurring the lines between personal and business is never a good idea. Your company is its own independent entity. Keeping your personal finances separated from your business will not only reduce problems in the long term but also make it easier to manage and keep track of your finances. One of the main reasons you should separate your business from personal finances is for tax purposes. The IRS allows business owners to claim deductions for business-related expenses. In order to successfully claim deductions, you must provide clear documentation that indeed the expenses were indeed business-related. Using your personal bank account to pay bills can be very risky. Instead, you can transfer money into an account in the name of your business as needed, which is called capitalizing your business. If there is no clear distinction between you and your business, creditors are able to claim your personal assets in order to satisfy a debt so consider opening a business bank account ASAP if you haven’t done so already

Use a Business Credit Card

Opening and making regular payments on a business credit card can help begin to build your business credit. Having a good credit score affects your business’ ability to qualify for increased credit lines, loans, office leases, equipment, and better terms from vendors. In addition, business credit also impacts your business insurance cost. While there are a multitude of credit cards for which you can apply, we recommend reading our latest blog post to find the best business credit cards for your particular situation.

Pay Bills on Time

Missed or late payments on your business credit can have serious consequences. One of the most common penalties is late fees. The average cost for late fees on a credit card ranges from $26 to $39. Over time these fees can add up. Making payments on time affects your credit score as well. In fact, 35% of your credit score is based on payment history. The graph below shows a breakdown of the different factors that can affect your business credit score.
Tips for Managing Your Small Business Finances

Choose the Right Accounting Software

Managing your business accounting can be an overwhelming task especially if you are tracking documentation manually. Having accounting software eliminates the guesswork from bookkeeping. FINSYNC allows you to put your accounting on autopilot. FINSYNC syncs with the majority of US banks, credit unions and credit cards. Our all-in-one solution allows you to create customized reports, track income and expenses, accept payments, and automatically reconcile your accounts with the right invoices and bills. It’s easy to get started. Sign up for a 7-day free trial, no credit card required.  
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