The Past Is Prologue
Before being approved for a business line of credit or a business loan, chances are good that a lender will take a close look at your personal credit history to get a sense of how you manage credit and debt, which will undoubtedly impact the credit or loan offer you receive. For that reason, it is a good idea to do everything you can to clean up and improve your personal credit score before applying for any type of business credit.
Make Your Business Legitimate
Even if you are a sole proprietor, you still want to do everything you can to treat your business as an actual company. This means either forming a Limited Liability Company, commonly known as an LLC, or incorporating your business, whichever you feel is better for you and your operation. Another good thing about incorporating or forming an LLC is that you have a way to keep your business separate from your personal life. Additionally, you’ll also want to look into a federal employer identification number, a free service that’s a way for the IRS to officially identify your business. Opening a checking and savings account specifically for your company is another good idea.
Do What You Can to Boost Your Credit Score
Going back to your personal credit score and doing what you can to improve it, there are several ways you can go about doing so. If it’s been awhile since you’ve done so, get a free copy of your personal credit report and look over it for mistakes and discrepancies, making sure they are corrected ASAP. You should also pay all your bills on time (or early, if you can) and use as little of your credit as you can. Boosting both your business credit score and your personal credit score will take time, but your diligence is sure to pay off.
Look Over Your Business Credit Report, Too
You also want to look over your business credit score report to see if it contains any discrepancies or errors that need to be addressed. Specifically, you want to pay close attention to:
- Contact information.
- Judgments, tax liens, fraudulent activity and all other public record info.
- Your business industry and type.
- Available credit, estimated sales, payment history and other such financial data.
Do not hesitate to question anything you either don’t understand or doesn’t look accurate. It’s always best to err on the side of caution when it comes to your finances.
Look Into Trade Lines
You might have a deal with a vendor to pay for goods or services received weeks or months later. Much like you would with creditors, you want to ensure you make payments on time. Not only is this simply good business, it can also be a good way to improve your business credit. This is because your vendor might report your payments to a reporting agency, much like personal credit card companies. By keeping up with payments, you have a great opportunity to improve your business credit score.
One thing to keep in mind with this particular tip is the fact that every vendor you do business with might not report your payments to a reporting agency. This means that even if you make on-time payments and/or pay more than your monthly minimum, you may not see an improvement in your business credit score. Be sure you’re clear on which vendors report to credit reporting agencies and which ones don’t.
If you don’t yet have any trade lines for your business, it’s a good idea to look into them. That’s because they can go a long way in boosting your credit and trustworthiness when business lenders are deciding whether to extend you a line of credit.
Make Your Payments Early
Making payments on-time is all well and good, but making them early is even better when it comes to business lines of credit. This is because, with select business credit scores, the only way to get above an 80 (out of 100) is to have a history of paying your bills early rather than on the due date. To help with this, it’s a good idea to set a reminder to pay your business credit bills a week or two earlier than the actual due date. It’s even better if you can set up automatic payments earlier than the actual due date.
Make it a habit to always work on improving both your credit and your business credit. As you’ve just learned, the two are intrinsically linked to the overall success of your business.