Looking to understand what goes into business credit or hoping to boost your business credit score? You’ve come to the right place! Our easy-to-understand articles and guides will set you on the path to building the best business credit score possible. With good business credit, you’ll have a solid foundation for financial business health. Whether you’re looking to understand your business credit score or looking to grow your business credit, our easy-to-understand articles and guides will set you on the path to building the best business credit score possible. With good business credit, you’ll have a solid foundation for financial business health.
Business credit is a financial rating that measures the creditworthiness of a business.
This rating is based on a business's complete credit history, including its payment
history, outstanding debts, and other financial information. Business credit is an
important tool for businesses, as it gives them better access to financing, helps them
establish relationships with suppliers, and allows them to manage cash flow more
effectively.
Business credit is different from personal credit in that it is tied to the business
rather than the individual. This means that the creditworthiness of a business is
separate from that of its owners or managers. Building good business credit for small
business requires a deliberate effort to establish and maintain a positive credit
history, which can take time and effort.
There are several different credit reporting agencies that track business credit,
including Dun & Bradstreet, Experian, and Equifax. These agencies use different metrics
to calculate business credit scores, but generally, a higher score indicates a more
creditworthy business.
Why is Business Credit Important?
Business credit is important for several reasons. First, it gives businesses a better
chance of receiving financing from lenders and investors. A strong business credit score
can help businesses secure better interest rates and loan terms, which can save them
money over time.
Having good business credit can help businesses establish
relationships with suppliers and vendors, leading to better payment terms and
discounts.
Another reason why business credit is important is that it can help businesses manage
their cash flow more effectively. With good business credit, businesses can access
funding when they need it, which can help them bridge gaps in cash flow and avoid
disruptions in their operations.
Finally, business credit can help businesses build their credibility and establish a
positive reputation. A strong credit score can signal to potential customers, investors,
and partners that a business is financially stable and responsible, which can help
attract new opportunities and partnerships.
Business Credit vs. Personal Credit
Business credit is different from personal credit in several ways. First, business
credit is tied to the business itself, rather than the individual who manages or owns
that business. This can be beneficial for businesses, as it allows them to establish
their own credit history and build a reputation that is independent of their personal
financial history.
Another key difference between business credit and personal credit is the way that the
credit scores are calculated. A personal credit score (also known as a FICO score) is
based on an individual's credit history and is tied to a Social Security number. This
score is determined by factors like outstanding debts, timeliness of bill payments,
credit mixes, and the length of the individual's credit history. A business credit
score, on the other hand, is based on the credit history of the business itself and is
tied to the business's Employer Identification Number (EIN). To determine a business
credit score, major business credit bureaus will also look at payment history, but will
include other factors like the age and size of the business, as well as the industry it
is a part of.
Finally, the types of credit available to businesses and individuals can be different.
Businesses may have access to lines of credit, trade credit, and other forms of
financing that are not available to individual people. Additionally, the terms and
conditions of business credit can look different from those of personal credit, with
different interest rates, repayment terms, and other factors to consider.
Establishing and Building Business Credit
How to Establish Business Credit
1
The first step to establishing business credit is to obtain an Employer
Identification
Number (EIN) from the IRS. This number serves as the business's tax ID and
is
necessary
for opening bank accounts and applying for credit.
2
Next, the business should open a bank account in its own legal business name
and
obtain
a business credit card. This account should be used for all business-related
expenses
and should be paid off in full and on time to establish a positive credit
history.
3
The business should also establish relationships with suppliers and vendors
that
offer
trade credit. Trade credit allows businesses to purchase goods and services
on
credit
and pay for them at a later date. This type of credit can be an effective
way to
build
business credit, but it's important to pay invoices on time to avoid
damaging
the
business's score.
4
Finally, the business should consider applying for a small business loan or
line
of
credit. These types of financing can help establish a positive credit
history,
which
gives an opportunity to establish a good credit history and, at the same
time,
provides
the business with the capital it needs to grow.
Types of Business Credit
There are several types of business credit available, including trade credit,
business credit cards, lines of credit, and term loans. Trade credit allows
businesses to purchase goods and services on credit and pay for them at a later
date. A business credit card work similarly to a personal credit card and can be
used for any and all business-related expenses.
Lines of credit provide businesses with access to a set amount of credit that can be
used as needed, while term loans provide a lump sum of cash that must be repaid over a
set period of time. In addition to these types of credit, businesses may also be able to
obtain financing through invoice factoring or equipment leasing. Invoice factoring
involves selling unpaid invoices to a third-party lender for a fee, while equipment
leasing allows businesses to lease equipment rather than purchasing it, outright.
Best Practices for Building Business Credit
To build strong business credit, there are certain practices businesses should follow to
maintain healthy and stable creditworthiness:
Make payments on time: Late payments can damage a business's credit
score, so it's important to pay all invoices, bills, and any other outstanding
payments on time.
Keep credit utilization low: Using too much of the available credit can
also damage a business's credit score, so it's a good idea to not use all of the
credit available each month.
Maintain a positive credit history over time: Building a positive
credit history takes months, so it's important to use credit responsibly and
consistently over time.
Monitor the business credit report: Businesses should regularly monitor
their credit reports to ensure that all information is accurate and up-to-date.
Establish relationships with vendors and suppliers:Building trade
credit with vendors and suppliers can help businesses establish a positive credit
history and access funding when they need it.
Common Mistakes to Avoid
Just like there are best practices to abide by when it comes to building business
credit, there are also some common mistakes that businesses should avoid. These include:
Mixing personal and business finances: It's important to keep personal
and business finances completely separate to avoid potentially damaging the
business's credit score with personal financial issues.
Failing to monitor credit reports: By not regularly monitoring their
business credit report, out-of-date and inaccurate information could slip through
the cracks and will be counted negatively towards their score.
Applying for too much credit: Applying for too much credit at once can
damage a business's credit score, so it's important to only apply for credit when
it's needed.
Making late payments: Late payments can damage a business's
reputation, as lenders will not feel secure in giving their funds to a business that
has a history of not paying them back on time.
Ignoring the importance of business credit:Building strong business
credit is essential for obtaining financing, establishing relationships with
suppliers, and managing cash flow effectively. Ignoring the importance of business
credit can limit a business's growth and success.
Business Credit Scores and Reports
Understanding Business Credit Scores
Business credit scores are numerical ratings that reflect the creditworthiness of a
business. These scores are used by lenders, suppliers, and other companies to assess
the
risk of doing business with a particular company.
Unlike personal credit scores,
which
range from 300 to 850, business credit scores typically range from 0 to 100. Business
credit scores are based on a variety of factors, including the business's
payment history, credit utilized, length of credit history, and public records such
as bankruptcies or liens. A high business credit score indicates that a business is
considered low-risk and is likely to be approved for credit and financing at
favorable terms.
How Business Credit Scores are Calculated
Business credit scores are calculated by looking at a number of key factors, including
payment history, how much credit is utilized, length of credit history, public records,
and industry risk. Although each credit reporting agency has its own algorithm for
calculating business scores, generally, a business's payment history is the most
important factor.
Things like late payments or having a history of delinquent payments can significantly
lower a business's credit score. Other factors like high utilization of credit, or using
a large percentage of available credit, can also significantly lower a business's credit
score. Other details that can impact a business's credit score include the number of
open trade lines, the age of the business, and any outstanding liens or judgments.
Business Credit Reporting Agencies
There are several business credit reporting agencies, but the big three are Dun &
Bradstreet, Experian, and Equifax. Each of these agencies collects and maintains
information on businesses and uses this information to generate a business score and
business credit report. Each business credit reporting agency has its own unique
database and methodology for
calculating business credit scores and reports. Dun & Bradstreet, founded in 1841,
is
the oldest and largest business credit reporting agency, and assigns a unique
nine-digit
DUNS number to each registered business.
Experian, one of the largest consumer
credit
reporting agencies, also offers business credit reports and scores through its
Business
Credit Advantage service.Each business credit reporting agency has its own unique
database and methodology for
calculating business credit scores and reports. Dun & Bradstreet, founded in 1841, is
the oldest and largest business credit reporting agency, and assigns a unique nine-digit
DUNS number to each registered business. Experian, one of the largest consumer credit
reporting agencies, also offers business credit reports and scores through its Business
Credit Advantage service. Equifax, another major consumer credit reporting agency,
provides commercial credit reports and risk scores through its Equifax Commercial
service.
Other business credit reporting agencies include CreditSafe, Cortera, and Ansonia Credit
Data. These agencies gather information from various sources such as public records,
trade references, and financial statements to create a comprehensive profile of a
business's creditworthiness, which is used by lenders, suppliers, and other businesses
to make informed decisions.
Monitoring and Improving Business Credit
How to Monitor Your Business Credit
Monitoring your business credit regularly is crucial to obtaining and maintaining a good
credit score and catching any errors or fraudulent activity. Business owners can monitor
their credit scores and reports through various credit reporting agencies, including Dun
& Bradstreet, Experian, and Equifax. These agencies offer business credit monitoring
services that notify business owners of any changes to their credit reports, such as new
inquiries, delinquent payments, or public record filings.
Business owners can also set up alerts with their credit card companies and vendors to
receive notifications of any unusual activity or changes in credit limits.
Reviewing financial statements and tax returns can help business owners identify
any
discrepancies that may affect their credit score.
Strategies for Maintaining and Improving Business Credit
Maintaining and improving business credit requires a consistent and proactive approach.
Some strategies to consider include paying bills on time (or even early), keeping credit
utilization low, and diversifying credit sources.
Paying bills on time is one of the most important factors in maintaining good
business credit. Late payments can significantly lower a business's credit score,
which leads to distrust among lenders, so it's important to prioritize paying bills
in a timely manner.
Keeping credit use low, or using a smaller percentage of available credit, can also help
improve business credit. Lenders and credit reporting agencies prefer to see a
utilization rate of 30% or less.
Finally, diversifying credit sources by obtaining credit from multiple vendors or
lenders can help build a stronger credit profile. This demonstrates that a business has
a solid financial standing and is able to manage credit responsibly.
How Personal Credit Can Affect Business Credit
While personal credit scores and business scores are separate, personal credit history
can still affect a business's ability to obtain credit and financing. Many lenders and
credit card companies require personal guarantees from business owners, which means they
are personally liable for any business debt. This means that if a business owner has
poor personal credit, it may be more difficult to obtain credit or financing for their
business.
In addition, personal credit may also impact a business's ability to obtain certain
contracts or partnerships. Many companies require a personal credit check as part of the
screening process for potential business partners or vendors.
Therefore, it's important for business owners to maintain good personal credit, along
with their business credit, to increase their chances of obtaining credit, financing,
contracts, and partnerships.
Dealing with Bad Business Credit
Consequences of Bad Business Credit
Bad business credit can have very negative consequences for a company. These
consequences may include difficulty obtaining loans or credit lines, higher interest
rates, and reduced supplier and vendor options. Bad credit can also make it challenging
to secure partnerships or contracts with other companies, and may negatively impact the
business's reputation and ability to attract customers or investors.
Furthermore, a low credit score can lead to higher insurance premiums or a requirement
for a larger security deposit. It may also result in limited financing options for the
business, hindering growth opportunities and stunting potential expansion.
Steps to Repair and Rebuild Bad Business Credit
If a business has bad credit, there are steps it can take to repair and rebuild its
credit score. The first step is to review the credit report and identify any errors or
discrepancies. Once identified, the business should dispute any errors with the
appropriate credit reporting agencies and ensure that all information is accurate and
up-to-date.
Next, the business should prioritize paying off any outstanding debts or delinquent
accounts. This will demonstrate a commitment to improving creditworthiness and help to
rebuild trust with lenders and credit reporting agencies.
Finally, the business should establish new credit accounts and begin using them
responsibly. Making timely payments and keeping credit utilization low can help to
rebuild their credit history with a positive trend, and improve their credit score over
time.
Financing Options for Businesses with Bad Credit
Financing options for businesses with bad credit may be limited, but they do exist. One
option is to seek out alternative lenders who specialize in providing loans to
businesses with bad credit. These lenders may be more flexible with their lending
criteria, though they will most likely require higher rates of interest or shorter
repayment terms.
Another option is to obtain a secured loan, which requires collateral such as
equipment or property, to secure the loan. This can help to reduce the lender's risk
and increase the chances of approval, but it also means that the collateral may be
at risk if the business defaults on the loan.
Finally, the business owner can consider obtaining a business credit card or line of
credit, which can help to establish and build credit over time. However, it's important
to use these credit options responsibly and pay them off on time to avoid accumulating
more debt and worsening the business's credit score.
Leveraging Business Credit for Growth
How Good Business Credit Benefits Your Business
Good business credit is essential for long-term growth and success. It allows businesses
to obtain financing at more favorable terms, including lower interest rates, longer
repayment terms, and higher credit limits. With good credit, businesses can also secure
better supplier and vendor terms, negotiate better payment terms, and access new markets
and customers.
Good business credit can also help to build trust and credibility with lenders,
suppliers, and customers, which can result in more favorable business opportunities
and partnerships. It can also help to protect the business owner's personal credit
by keeping business and personal finances separate.
Additionally, a strong credit history can provide businesses with access to additional
resources, such as business credit cards, lines of credit, and loans, that can be used
to support ongoing operations, expansion, and investment in new technologies or
equipment.
Financing Options for Businesses with Good Credit
Businesses with good credit have access to a wide range of financing options, including
traditional bank loans, SBA loans, lines of credit, equipment financing, and invoice
financing. With good credit, businesses can secure financing with much more desirable
terms, saving them money on high interest rates or larger payment sums.
SBA loans, in particular, are a popular financing option for small businesses with good
credit. These loans are backed by the Small Business Administration and offer
competitive rates and flexible repayment terms. Other financing options, such as invoice
financing and equipment financing, can provide businesses with access to capital without
requiring collateral.
Using Business Credit to Expand and Manage Cash Flow
Good business credit can be used to expand and manage cash flow in a number of ways. For
example, businesses can use credit to invest in new technologies and equipment, expand
product lines, or hire additional staff. They can also use credit to manage short-term
cash flow challenges, such as unexpected expenses or seasonal fluctuations in revenue.
Business credit can also be used to negotiate better payment terms with suppliers, which
can help to improve cash flow and reduce the risk of late or missed payments.
Additionally, businesses can use credit to take advantage of early payment discounts,
which can further improve cash flow and reduce overall costs.
However, it's important for businesses to use credit responsibly and avoid overextending
themselves. Businesses should have a solid plan in place for how they will use credit to
achieve their growth goals and ensure that they can comfortably manage any debt they
incur.
Business Credit Resources and Tools
Where to Check Your Business Credit Score
There are several credit reporting agencies that provide business credit reports and
scores, but the top three major business credit bureaus are Dun & Bradstreet, Experian,
and Equifax. Business owners can also view their credit scores and reports from free
online services such as Nav, CreditSignal, and Credit.net.
It's important for businesses to regularly check their business credit scores and
reports to ensure accuracy and monitor for any changes or issues that could affect their
chances of obtaining financing or securing good payment terms with suppliers and
vendors.
Business Credit Cards and Loans
Business credit cards and loans are valuable financing tools for businesses of all
sizes. They can provide access to capital for ongoing operations, expansion, or
investment in new technologies or equipment. Business credit cards and loans also
allow
businesses to build credit and establish relationships with lenders, which can be
beneficial in the long run.
Business credit cards typically offer rewards programs and other benefits, such as
cashback, travel rewards, and discounts on business expenses. Business loans can provide
businesses with larger amounts of capital at a lower interest, making them a more
cost-effective financing option for long-term investments.
When applying for business credit cards and loans, it's important to compare offers from
multiple lenders and to carefully review the terms and conditions. Look for lenders that
offer competitive interest payment rates and fees, as well as flexible repayment terms.
Business Credit Building Services
There are several companies that specialize in helping businesses build and improve
their credit scores and reports. These services can provide valuable tools and
resources, such as credit monitoring, dispute resolution, and credit education.
Some popular business credit building services include CreditSignal by Dun & Bradstreet
and CreditBuilder Plus by Nav. There are both free and paid credit building services
available, depending on the business's specific needs. These services can help
businesses identify and resolve any issues or errors on their credit reports, as well as
provide guidance on how to improve their credit scores over time.
It's important to carefully evaluate the costs and benefits of using a business credit
building service, as some services can be expensive and may not provide significant
value.
Look for services that offer transparent pricing, clear guidance on how to
improve your credit score, and positive reviews from other business managers and
owners.
Applying for a Revenued Business Card
Benefits of a Revenued Business Card
The Revenued Business Card is an excellent option for businesses who have a limited
credit history or a fair credit score. There is a sign-up bonus of $500 after spending
$5,000 on eligible purchases within the first three months. The rewards rate on this
card is a flat 3% cashback, and the card does not charge any set up, monthly, or annual
fees, nor does it have an APR.
The card has a low entry barrier for credit scores, which makes it an accessible option
for small business owners who have a less-than-good business credit score or limited
credit histories. The card does not require a hard credit inquiry, so there is no
temporary dip in any personal credit score. Additionally, the card's spending limit
increases with a business's revenue, making it a great option for business's who are
seeing rapid growth and need access to more funding for their operations.
How to Apply for a Revenued Business Card
Applying for the Revenued Business Card is simple and takes only a few minutes.
The whole application process can be done online on Revenued's secure website. Approval
can be done in as little as an hour, and the login information and funds are accessible
after 24 hours.
The decision is based solely on a business's revenue and cash flow, as opposed to a
credit score, so no hard credit inquiry is required. This keeps any personal credit
scores from dropping temporarily during the application process.
Eligibility Criteria and Application Process
To qualify for the Revenued Business Card, there are a few different criteria
that must be met. Firstly, the business must operate from within the United States. It
must also be in operation for six months or more, so it cannot be a start-up company.
Also, the card must be opened using a business account, meaning that a personal account
cannot be used. This is a good thing, as personal and business financial activities
should be kept separate so as not to affect a personal FICO score. Lastly, the business
account used to open the card must not have ever gone into negative for more than three
days in any given month.
Using a Revenued Business Card to Manage and Grow Your Business
Using the Revenued Business Card is a great way to help manage and grow your
business. With spending limits increasing as revenue grows, you can keep on top of
payments and cash flow without worrying about going overboard on spending.
Even if your business credit score is not where you want it, or your business credit
history is limited, the Revenued Business Card allocates you the funds you need,
now, in order to grow your business and allow you to get started on turning your
business credit history in a positive direction.
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FAQs About Business Credit
Establishing business credit for a new business can be challenging, as most lenders and credit reporting agencies require a track record of financial performance before extending credit. However, there are several steps new businesses can take to start building credit. One important step is to incorporate the business, as this creates a separate legal entity from the owner, which can help protect personal assets in case of business bankruptcy or default. New businesses should also obtain a federal tax ID number and open a business bank account to establish a separate financial identity from the owner.
Another way to establish business credit is to obtain a business credit card and use it responsibly. Making timely payments and keeping credit utilization low can help build a positive credit history. Businesses can also use trade credit with suppliers and vendors to build a credit history. It's important to use credit responsibly and make timely payments to build a positive credit history.
The time it takes to get approved for a business credit card can vary
depending on several factors, such as the issuer's specific policies, the
applicant's creditworthiness, and the completeness of the application. Some
issuers may offer instant approval for qualified applicants, while others
may take several weeks to process an application. Generally, if the
applicant has a good credit score and a well-established business, they may
receive faster approval and higher credit limits. However, if the applicant
has poor credit or a new business, the issuer may require additional
documentation or a personal guarantee, which can prolong the approval
process.
To expedite the business credit card approval process, applicants should
ensure that their application is complete and accurate and that they have a
good credit history. It's also important to research the issuer's specific
requirements and policies before applying to increase the likelihood of
approval.
In general, most business credit card issuers require that a business has been in operation for at least six months to a year before applying for a credit card. However, this requirement can vary depending on the issuer and the applicant's credit profile. For instance, some issuers may offer credit cards to startups with no revenue history, while others may require several years of business operation and substantial annual revenue.
Additionally, businesses that have been operating for a longer time and have a proven track record of financial stability are more likely to receive favorable credit terms and higher credit limits. Before applying for a business credit card, applicants should consider their business's creditworthiness, revenue history, and overall financial health to ensure they meet the issuer's specific requirements.
The ideal annual revenue for a small business will depend on various factors, such as the industry, location, and size of the business. However, in general, a small business with annual revenue between $1 million to $10 million is considered successful. Smaller businesses may have lower annual revenue, while larger businesses may generate significantly more revenue. Additionally, businesses in some industries, such as healthcare, finance, and technology, may have higher revenue expectations than businesses in other industries.
A good way to determine what constitutes good annual revenue for a small business is to compare it to other similar businesses in the same industry and location. Business owners can also consider their business's growth potential, profitability, and sustainability when evaluating their annual revenue. Ultimately, a good annual revenue for a small business is one that supports its ongoing operations and enables it to achieve its long-term goals.
Separating personal credit and business credit is important for several reasons. First, it helps protect personal assets in the event of business bankruptcy or default. Second, it allows businesses to build a strong credit profile that can be used to secure financing and negotiate favorable terms with suppliers and vendors. To separate personal and business credit, business owners should obtain a separate tax ID number, incorporate the business, and establish a separate bank account and credit profile.
It's also important to use credit responsibly and avoid commingling personal and business finances. Business owners should use business credit for business expenses only and not use personal credit cards or loans to finance business expenses. In addition, keeping accurate and separate financial records can help ensure that personal and business finances remain separate.
Business credit cards generally do not affect personal credit unless the business owner uses their personal credit to secure the card or fails to make payments on time. This is because business credit cards are designed to help businesses manage their expenses and build their credit history independently of the owner's personal credit. Issuers typically report business credit card activity only to commercial credit reporting agencies, which track business credit history and scores separately from personal credit.
However, if the business owner provides a personal guarantee for the business credit card, they become personally liable for the debt, and any late or missed payments can negatively impact their personal credit score. Additionally, if the business owner uses the business credit card for personal expenses or commingles their personal and business finances, it can further complicate their credit reporting and potentially harm their personal credit score.
The credit score requirements for business loans can vary depending on the lender and the type of loan. In general, lenders prefer borrowers with higher credit scores, as this indicates a lower risk of default. Some lenders may require a minimum credit score, while others may be willing to work with borrowers with lower scores. Other factors that lenders may consider when evaluating loan applications include the business's financial statements, cash flow, and collateral.
To increase the chances of being approved for a business loan, businesses should strive to maintain a strong credit profile. This can include making timely payments on existing debts, reducing credit utilization, and monitoring credit reports for errors or inaccuracies. Building relationships with lenders and having a solid business plan can also help increase the likelihood of being approved for a loan.
Improving a business credit score can take time, but there are several steps businesses can take to help them work on building a positive credit history.
Make timely payments on all debts, including credit cards, loans, and trade credit.
Reduce credit utilization by paying down existing debts or increasing credit limits.
Monitor credit reports for errors or inaccuracies and dispute any issues.
Build relationships with suppliers and vendors to establish a positive credit history.
Use trade credit to build credit without taking on additional debt.
Avoid taking on too much debt and manage cash flow effectively to improve your credit score over time.
