Best Way To Build Business Credit, How Credit Cards Play A Chief Role
Most business owners have never taken the time to build business credit. Two major reasons I have decided to begin this article with this sentence are: 1) To encourage those who have not taken the time to build business credit. From this statement you can see that you are not alone. 2) To help others understand that if they take this seriously, and take the time and effort to establish business credit, anyone can and will enter the elite small group of business owners who have a superb edge on their competition because they can leverage themselves financially through business credit in a way that their competitors cannot.
A road map outlined by experts.
To begin, first you must separate your business credit from your personal credit. In order to do this you must set up either a corporation or an LLC.
If you are a sole proprietorship or a partnership you are 100% liable for any money that you borrow perhaps you have heard of personal guarantor.
Your business must have an EIN number, and it should not be connected to your social security number.
Your business should open a bank account that is not linked to your personal account in any way.
Be sure that the account has the correct business name that is registered with the state.
Your business should also have a business phone number that is separate from your personal phone number, and it should be listed with your local phone company as a business, and be in a 411 directory. An affordable company to help with phone numbers is Kall8.
Your business must establish one bank loan, 3 business credit cards and 5 vendor accounts that all report to these three credit bureaus. Just a few items to point out that are important: 1) Business credit is not an alternative to personal credit. Both should be worked on and maintained. They will both determine how much you will be able to receive from lending institutions. Most times, lending institutions will in addition to looking at the business credit, look at the personal credit worthiness of the corporate officers or principles of a corporation or LLC. If you have bad personal credit, we can work on it at the same time while you are building business credit which usually takes six to nine months.
2) I have seen companies extend large sums of money to those who had a good credit score and report with Dun & Bradstreet without looking at other sources. Make sure that whoever is reporting on your behalf, reports to all three bureaus. 3) Business credit is distinctive from personal credit. There are laws that protects the accuracy of information on your personal credit that does not exist for your business credit. Therefore it is harder to change bad or inaccurate things on your business credit report, thus it is important to establish business credit correctly, right from the start.
Why credit cards are the key.
In essence, your business has to ascertain a credit history. Again reflecting on our road map of 3 credit cards, 1 bank loan, and 5 vender accounts, each time we attain one of these elements it will be easier to attain the next.
If we do not qualify for an unsecured credit card, it is relatively easy to get a secured credit card as long as we have a small sum of money that we can deposit into an account as collateral on our credit limit for the newly acquired credit card. Once we have our credit card, it will be easier to get vendors to extend us a net 30 or 60 or 90 day line of credit provided that we allow them to keep our credit card on file. After we have paid on our secured credit card for a little while our bank will make it an unsecured credit card usually around six months.
Afterwards, it is often easier to get another issuing bank to give you an unsecured credit card as they can see that your business has formed a measure of credibility. At this point, things can move forward in a timely fashion and before you know it you have everything on the road map to success. Once you have reached this point, a few things to remember are: 1) keep your credit card balances below 30% of your total available credit (preferably 10%) as this will reflect well on your credit score. In addition to this it is important to make sure you do not have any insufficient funds hit you record for checks that your business writes, pay all your accounts on time as well as pay all your taxes on time.
If you do this you will build good credit and before you know it you will be in the minority of people who are in a position of financial power able to make strategic maneuvers at key moments. If you are in need of a secured credit card or any credit card for that matter you can find one on my website https://www.creditbuildercard.com/avim.html