Many small business owners use personal credit to run their business. However, doing so could put you at risk if your business is ever in trouble. As the new owner of a business, one of the most important things you can do for your company is to establish and build business credit.
You probably have a good idea of how your personal credit score is determined. But, how is your business credit score calculated? Is it the same as your personal credit score?
How does business credit work?
To have separate credit, your business must be an LLC or corporation. This makes your business an entity separate from you. Sole proprietor’s credit remains exactly the same as the business’s credit because you are legally the same entity.
Business credit is scored differently. While your personal credit is scored from 300 to 850, business credit is scored from 0 to 100. If you score more than 75, you have a very good business credit score.
The way your business credit is scored is based on how your suppliers report your payment history. They have no legal or ethical obligation to report this information to business credit bureaus. So, if it’s a smaller supplier, they may not report the information at all. If you want to establish credit, it’s up to you to make sure the supplier you pay reports your transaction information to the business credit bureaus.
4 Simple Steps You Can Take to Establish Business Credit:
Form an LLC, S-corporation, or C-corporation (if you haven’t already)
Apply with the IRS for an EIN number
Make sure at least some of your suppliers report your transactions to business credit bureaus
Pay your bills on time. Just like you do with your personal credit, you establish business credit with a good payment record. Whatever bills your company has to pay, simply pay them on time or negotiate repayment plans with creditors.
For more information about personal and corporate credit building, contact a Nevada Corporate Headquarters Representative by calling 1-800-508-1729.