There are many advantages to a better credit score. For the average consumer, benefits of higher credit scores include better interest rates on credit cards, personal and auto loans and not having to make a deposit when you turn on utilities. Also, a bad credit score can preclude some job applicants from employment.
For home business owners, there are more benefits. According to a U.S. Trust study, 16 percent of home business owners fund their startup with a credit card. Other business owners need to use credit to span the time before a client pays for your product or services.
If you are considering a business credit card and your business is tiny or you don’t have much of a track record, the credit card issuer is going to base a lot of their decision on your personal credit score. Thus, it behooves you to improve your personal credit score in order to help seed your home business.
Also, if you have desires of growing your business, you need to consider how to establish credit for your business. You may need to, for example, get an account with suppliers that will allow you to pay 30 or 60 days after you receive the items.
At Interstate Associates, they are in the business of providing advice for those in home businesses to help them manage their credit.
Improving Personal Credit
Let’s first look at ways to improve your personal credit score in order to benefit your home business:
Pay on Time: This one is obvious. According to NerdWallet, this is the single most influential means of improving your credit score. By the way, this includes utility payments, not just traditional credit payments.
Dispute Any Erroneous Charges: You can get your credit report from any one of the three credit reporting agencies – Experian, Equifax and TransUnion – and carefully look for mistakes. According to Nerdwallet, about 5 percent of all items on credit reports are erroneous. If there is a mistake, you have a legal right to dispute the mistake.
Keep Paying Off Debt and Maintain Low Balances on Credit Cards: Most people are not aware that maxing out credit cards harms their credit score. Experian suggests a credit card utilization rate of less than 30 percent per month. That means you should endeavor to only utilize less than 30 percent of the maximum credit limit on all of your credit cards each month.
If you are unable to pay off debt, due to high-interest credit cards, you can take out a debt consolidation loan at a lower interest rate that pays off all of the credit card debt. This allows you to make one payment each month and attack the debt more fiercely at a lower interest rate. The added bonus is that you will have lowered your credit card utilization percent and increase your credit score.
Only Apply for Credit You Need: If you make too many inquiries into acquiring new credit cards, it can harm your credit score.
Don’t Close Card Accounts: It seems counter-intuitive, but Experian states that closing credit card accounts may increase your credit utilization percentage, lowering your credit score. Of course, you don’t want to keep open an account that costs you money to maintain if you are not using it.
Building Your Business Credit Score
Once you have your personal credit score in better shape, you can begin to apply for business credit cards and business loans.
Interstate Associates advises the following are ways to establish business credit:
- Establish an LLC entity or incorporate your business
- Get the federal Employer Identification Number
- Establish the name of your business in your state
- Open a bank account exclusively for your business using your business name
- Get a phone line for your business
- Register with Dun & Bradstreet for a D-U-N-S Number
All of these steps put your business on the radar with the business credit reporting companies – Experian, Dun & Bradstreet and Equifax.
Then, NerdWallet suggests you are ready to build business credit by:
- Working with a vendor that reports to the credit agencies
- Get a business credit card
- Make payments on time
- Keep checking your business’s credit rating with all three agencies
At Interstate Associates, they want to help your small business flourish. They are there to provide advice that helps you improve your personal and business credit scores so that you can seed your business growth.
