While your resolutions as a small business owner probably include things like “grow my business” or “hire my first employee,” I’m guessing “build business credit” didn’t make the list. That’s a shame because putting energy into your business credit can actually help you realize the other goals on your list!
Your business credit is one factor lenders, investors, and credit card companies look at when deciding whether to lend you money or invest in your company. The better your business credit is, the more qualified you are for certain types of financing. It may also help you get better rates and even land lucrative business deals.
If your business credit is poor, or even nonexistent, make a goal this year to work on changing that.
Month 1: Check if you have a business credit report
Find out whether your business is on the radar of major business credit reporting agencies. There are three primary U.S. business credit bureaus:
- Dun & Bradstreet
- Experian
- Equifax
If you can’t locate a credit report with these entities, it may be because you haven’t yet obtained accounts that are reported to these bureaus.
Month 2: Check your credit scores
If you didn’t find a report for your business with any of the credit reporting agencies, then skip this step and come back to it in a couple of months after you’ve taken the next steps.
But if you do establish you have a business credit report with these agencies, you might notice that you’ve actually got several business credit scores; each bureau can create its own score for your business.
The tricky thing is that your score will be different with each, because each has its own proprietary scoring system, and because not every lender or credit card company you borrow from reports to the same agencies.
If you have a small business credit card, for example, your monthly payments might be reported to Experian but not the other two. It’s unlikely you’ll know which reports or scores lenders are going to check, so staying on top of your scores from all three major bureaus is helpful.
Month 3: Review vendor reporting
It gets more complicated (not really). You likely have accounts with vendors or suppliers who allow you to pay on say, net-30 terms. Some report those payments to business credit bureaus, some don’t. No company is required to report to credit bureaus, which means that your decades of on-time payments with the office supply store down the road may have done nothing to help you build your credit.
First, start by finding out whether the vendors you work with do report to credit agencies. Simply looking at your business credit report will tell you this. Sort of. Since business credit reports don’t list the names of companies that report, you may have to surmise which is which based on account details.
If your vendors don’t report to credit agencies, consider switching to vendors that do. Opening tradelines with vendors that offer you payment terms like net-30 and that report those payments to credit bureaus is the first step to building your credit history. As you pay your bills on time, you will begin to build up your credit history and scores.