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Building a Strong Credit Profile: Best Practices for Small Businesses

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Access to proper funding is a big advantage for small growing businesses in today’s competitive market. It provides them with plenty of room to grow and unlock new opportunities for operations and expansion. But what if you don’t have a lot of capital to begin with?

July 6, 2023
Author: NCH

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Luckily, there are plenty of ways you get more funding for your venture. For example, you can start building your business profile. 

Having a strong business credit profile can get you better loans, impress suppliers and partners, and catch the eye of potential investors. It’s the gateway to great interest rates, higher credit limits, and sustainable growth. 

If you want to learn how to build a robust business credit profile, you’ve come to the right place. In this blog, we’ll explore how you can establish or boost your business credit profile in eight ways. 

How to Build A Strong Credit Profile For Your Business

There’s no denying that understanding how business credit works can be challenging. So, to help you, we’ve listed some of the best ways you can build your credit profile. 

Get your EIN 

The first thing you need to do to build your business credit is to get an employer identification number (EIN) from the IRS. Think of it as your business’s social security number.

Your EIN is your business’s identifier, which you will need to open corporate bank accounts and file your taxes. 

There are two ways you can get your EIN, online or through mail. You can apply online using the IRS’ website, or you can mail your application. Applying for your EIN is free, so we suggest you start with this step. 

Apply for a DUNS number

Dun & Bradstreet is one of the three major business credit bureaus that vendors report to. If you want to get a report from them, you must get a DUNS number from their website. 

DUNS numbers are free and required for applying for federal grants. Lenders will typically use them to check your business credit profile.

Build vendor relationships

When you build great relationships with your vendor, you can get better payment terms for your inventory through trade credit. These accounts-payable relationships can help boost your credit profile, especially if they report to a business credit bureau. 

If you want to create a tradeline with a small vendor, you can instead list them as a trade reference on your account. Dun & Bradstreet will then collect your trade data to include in their report. 

Diversify your credit

Relying on one type of credit line as your sole source of capital is not always the best move. What if that credit line shuts down or your limit gets reduced? It would be best if you had a backup plan.

Instead of sticking to one bank, diversify your credit and work with other lenders. Remember, you don’t have to pay for it if you don’t use it. Think of it as an insurance policy for your business that you can access when needed. 

Monitor your reports consistently

It’s challenging to know how you can improve your business credit profile if you don’t know its state in the first place. If you want to boost your score, you need to monitor your reports consistently. 

Check your scores and ratings from different credit bureaus to ensure everything is accurate. You can also pay for regular monitoring through a credit reporting agency. They’ll help you keep track of any changes in your profile. 

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Look out for any potential problems

When you start periodically checking your credit reports, you’ll be able to see any potential problem that could impact your score. If there’s any discrepancy in your report, you need to dispute it immediately. 

Additionally, if you see any unpaid debts, you need to settle them immediately. Failure to do so could lead to a judgment or collection record on your report, which will stay there for almost seven years. 

Be on the lookout for any issue you can immediately resolve to keep your business credit profile clean. 

Pay early

Paying your debts on time is one of the easiest and best ways to improve your business credit. While paying on time is good, paying earlier is even better. 

Bureaus like Dun & Bradstreet often measure your payment history, and you can only get a high score if you pay your debts early. 

We also recommend using less than 30% of your credit. This way, you can keep your credit utilization rates low and be more disciplined with your debts.

Keep personal expenses separate from your business

It’s highly common for small business owners to use their own credit lines to fund their businesses. However, this makes it hard to keep personal expenses separate from their businesses. 

Once you use a business credit card, only use it for your business expenses. Doing so will make it easier for you to keep track of everything, which will help you make informed decisions on your business credit profile. 

Bottomline

Building a strong credit profile is not a one-time task but an ongoing process. It requires diligence, responsible financial management, and healthy credit practices. As your business evolves and grows, so should your credit profile.

You can actively work towards improving your creditworthiness by understanding the key factors that contribute to a strong credit profile, such as timely payments, credit utilization, and diverse credit sources.

As you continue your business journey, leverage your strong credit profile to access better financing options. A solid credit foundation will help you seize opportunities and navigate any financial challenges in the future. 

Don’t let the complexities of business credit stop your venture from growing. Contact NCH today, and let us help you. Our business specialists will help you determine the best way to boost your business credit.

With our expertise, you can make the most of your business credit profile and access more funding. To learn more about our services, visit our website here or call 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.

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