Establishing a Credit Score For Your Business

Credit scores are important, whether as an individual or putting up a business. For private individuals, good credit scores will encourage credit card companies to provide credit cards. On the other hand, businesses need a good credit score in order to borrow money or apply for a loan. Over the years, a number of other advantages have been added to the list. This includes obtaining approval for a business credit card, getting lower insurance premiums as well as being offered more flexible payment terms from some suppliers. As such, it is important to secure a good credit score for the business. Here are some of the ways to help start up businesses establish a good credit score.

Measuring Business Credit

A Paydex Score is used to determine business credit. What differentiates individual credit with business credit is how it is calculated. With individual credit, several different factors are used to determine the score. On the other hand, the Paydex formula only looks into whether a business is able to make payments on time and bases its calculations on that single factor alone. Paydex scores range from 0 to 100. A score of 80 and above is ideal as it indicates that the business pays on time or even earlier than the deadline. Having a score of 70 means the business pays the bill 15 days beyond the deadline while 50 equates to paying 30 days beyond the deadline.

How to Get Good Business Credit

1. Sort out bills

Start by using the company’s name to apply for utility services. This will help legally separate the owner’s transactions from that of the company’s. Lenders will also look at these records to determine how well you pay for the company’s bills.

2. Get a Federal Tax Identification Number (EIN)

Obtain a business EIN from the IRS. You will need to use this number when filing for company taxes. The same number is also used to register the business with Dun & Bradstreet (D&B) and other credit bureaus. This is where you will be building business credit and getting a Paydex Score.

3. Start building credit early

Experts recommend building business credit for at least a period of three to six months prior to applying for any loan. The cheapest way to build up credit is to apply for a nine-digit DUNS number which is your business identification number

4. Buy small items

It does not matter what you buy as long as you choose to buy from a company that directly submits its payments reports to D&B. Experts advise buying office supplies as these can also be used when the business has already been set up. Choose companies that you will transact with on a regular basis and build a good credit line with them.

5. Pay on time

As with other financial obligations, pay your bills on time. If possible, pay before the due date. Any late payments can negatively affect your business credit score and may affect whether or not lenders will approve future loan applications. Monitor your score at least once every quarter. Some types of changes, such as moving to a new location, having outstanding balances, payment habits and business structure, can affect your credit score. If there have been changes in such areas, be sure to report it as promptly as possible to ensure that the account details are accurate.

Additional Tips

  • Open a bank account for the business

Use the legal name of the business to open a bank account and use this to pay business-related bills and other types of financial transactions. This will help owners sort personal transactions with business transactions and establish a good reputation with the banks.

  • Apply for a business phone line

Regardless of whether you intend to apply for a landline, mobile phone or a VoIP, owners should consider applying for a business contact number. Much like applying for a business bank account, this should be applied for using the business’ legal name. Have this number listed on directories and websites to make it easier for customers to contact the company.

  • Apply for a business credit card

Apply for at least one credit card using the company’s legal name. It should be applied on a separate account from that of the owners. Choose a reliable credit card company that sends its reports directly to credit bureaus.

Bethany Wesch writes about blogging, branding and online marketing. She writes for – a professional SEO Sydney company which specialise in providing online marketing solutions to small businesses and sales people.