As an entrepreneur, establishing a solid credit profile is crucial for long-term growth and financial stability. Not only does it open up a world of growth opportunities, but it also helps you get better deals on your loans.
However, building business credit for your LLC can be daunting if you don’t know where to start. That’s why we’re here to guide you through the process with practical tips and expert insights.
In this blog, we’ll discuss how limited liability companies (LLCs) build credit and explore what a good score looks like.
Do LLCs Have Their Own Credit Score?
Just like us, LLCs have their own credit scores and reports. This number represents how well it manages its payment obligations and is tied to its Employee Identification Number (EIN).
You can use your company’s business credit score to get more loans and attract investors. Ultimately, it plays an important role in the success of a business; that’s why small business owners need to maintain a good score.
What Does A Good Business Credit Score Look Like?
Before we proceed on how you can establish a credit profile for your LLC, let’s talk about what a good profile looks like first.
Business credits are scored differently from consumer credits. Instead of using a standardized ranking system, the scores vary depending on the reporting agency or bureau you’re working with.
The scales may differ, but these companies rank scores from 1 to 100. The higher your ranking is, the better. For example, for the Dun & Bradstreet PAYDEX, a score ranging from 80 to 100 is considered good. On the other hand, for Experian’s Intelliscore Plus, a rating of 76 to 100 is the most ideal.
The best way to maximize your LLC’s credit score is by familiarizing yourself with the reporting entities that lenders work with.
How to Build Your LLC’s Credit Score
There are plenty of ways you can build your LLC’s credit score. Here are a few examples:
Incorporate Your Business
The first thing you need to do to establish your LLC’s credit score is to incorporate your business. Incorporating separates you from your business by providing it with its own legal identity.
This allows you to keep your personal credit score separate from your company. If you haven’t done this yet, you must register your business as an LLC with your Secretary of State.
Before opening a bank account, you need to get your EIN from the Internal Revenue Service (IRS). It serves as the unique identifier of your business and is vital in filing taxes and establishing business credit.
The process of getting an EIN is pretty straightforward. You can do it online or by mail, depending on which works better for you.
However, remember that having an EIN doesn’t automatically build your LLC’s credit. You still need to do a few things to build your LLC’s score.
Open A Bank Account
Once you have your EIN, you can open a bank account, which is important if you plan on getting a business credit card. Opening a bank account allows you to build a relationship with a banking partner.
Your relationship with your bank will play a vital role in whether or not you can get a loan for your LLC.
Register With Business Credit Bureaus
If your chosen bank account doesn’t report to the credit bureaus, you can register your LLC with one of the bureaus directly. There are three major credit bureaus that most vendors report to:
Dun & Bradstreet
When you register your business with one of them, they’ll collect information about your LLC’s finances through various sources like your bank accounts, payment history, and more.
They’ll then use this information to build your LLC’s credit profile and calculate its overall score.
Now that you have a working profile, all you need to do is to build a good score.
Set Up Net-30 Accounts
Starting a net-30 account with suppliers is one of the easiest ways an LLC can build credit. These are accounts you create with vendors that allow you to purchase items your company needs.
However, if you want to use your account to establish your credit, you must look for a vendor that reports to one of the three credit bureaus mentioned earlier.
We suggest you get two or three net-30 accounts with small credit limits. You need to ensure that you pay each of them on time because most bureaus focus on your payment history.
Use Your Credit Wisely
Credit utilization refers to how often you use your business credit. Vendors use it to measure how responsible a business is with its credit. It’s recommended that LLCs keep their utilization ratio under 30%.
For example, if your credit line has a $15,000 limit, your balance shouldn’t exceed $4,500 for a balanced ratio.
There are plenty of other ways to increase your utilization ratio besides spending less. For instance, you can pay off your debt each month. Not only will this keep your balance as low as possible, but it’ll also help lower the interest rates you have to pay.
Establish A Good Credit Score For Your LLC Today
In conclusion, a strong business credit score is necessary for any thriving business. It unlocks doors to growth opportunities, better financing options, and increased credibility.
If you need help building your LLC’s credit score, NCH is here to help.
With our expert guidance and tailored solutions, we provide the tools and knowledge to navigate the complexities of business credit. Whether you’re just starting or looking to improve your existing credit profile, our dedicated team is here to support you every step of the way.
We’ll help you understand your LLC’s credit score and work with you to build it to a healthy number. NCH understands how important a good business credit score is to growing companies, so we’ve committed ourselves to assisting our clients in achieving it.
Learn more about our credit-building services by visiting our website or calling us at 1-800-508-1729.
DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.