How to Maintain Healthy Credit for Your Business

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Credit: | How to Maintain Healthy Credit for Your Business | We all know that we have a personal credit score that affects our borrowing power, which is the amount of money creditors are willing to lend us. Your credit affects your ability to buy a home and take out a credit card.

What some people don’t realize, is that if you have a business, your business entity will have a separate credit score if you take a few basic measures. The good thing about having a separate credit score for your business is that one does not affect the other, and a mistake or drop in your personal credit history will not affect your business and vice versa. However, it’s equally important to monitor your business credit score as your personal score. 

Build Credit History

If you are beginning a business, one of the best things you can do is incorporate your business. This involves getting an EIN, or employer identification number so that you can pay taxes to the Internal Revenue System. Having an employer identification number separates your business from your personal identity and credit score and forms its own entity. Once this is established, you can begin to build credit for your business.  

When you set up a business, be sure to establish separate banking accounts that are business-related only. You don’t want to use your personal accounts for business transactions. This can be very confusing and lead to errors in your accounting. It’s also a good idea to utilize software that tracks your business expenses and income. This makes record keeping easy since you have everything in one place. It also eliminates many errors.

A good way to establish credit for your business is to foster a good relationship with several of your most frequently used suppliers and set up a line of credit with them. This will allow you to build your credit history and also makes business transactions much easier. You should also consider getting a credit card in the business’s name. Another option is to establish a line of credit with your bank. This gives you access to cash when you need it without the hassle of applying for a loan for each expense or need you may come across.

Your business credit score will be calculated based on the number of accounts that you have, the history and length of time these accounts have been open, the balance you hold with your creditors, and your payment history. Start out strong by paying your accounts in full each month, or at least make the minimum payments on time each month. This will help you to build good credit fast.

Fix a Low Score

A business credit score is a number that is calculated based on your past credit history and shown as a number from zero to 100. The closer your business score is to 100, the better off your business is. If you find that you have a low business credit score, you can take measures to fix it.

If you find you need to fix credit score, there are steps you can take. The first thing that you should do is get a copy of your credit report. Once you have your report, check it thoroughly for any mistakes and identify any negative remarks. If there is an error, dispute it with the credit bureau and creditor to get it removed from your report. Next, you should make an effort to pay off any past due balances. After this, you can focus on making on-time payments each month to pay down your account balances and increase your credit limit. Over time, these actions will result in an increased credit score and give you access to higher credit limits.

Healthy business credit is important because it will affect your business’s borrowing power. If you are hoping to expand your business in any way, good credit is a necessity to secure the funding that you will need. Make sure that you pay close attention to your spending habits, monitor your credit reports, and pay your bills on time to keep your credit in good shape.

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