The following article comes directly from www.entrepreneur.com and contains some very valuable information regarding business credit.
As an entrepreneur, did you know you have a unique opportunity to build, maintain and acquire credit both individually and as a business owner? That’s good news if you’re trying to build and grow a company because you won’t have to rely solely on your personal credit to do that.
As a member of the business credit industry, it’s been my experience that fewer than 10 percent of all entrepreneurs know about or truly understand how business credit is established and tracked-and how it affects their lives and businesses.
So let’s first take a look at how personal credit differs from business credit. Then we’ll discuss some steps you can take to build your business credit.
At the point an individual with a social security number accepts their first job or applies for their first credit card, a credit profile is started with the personal credit reporting agencies. This profile, otherwise known as a credit report, is added to with every credit inquiry, credit application submitted, change of address and job change.
The information is typically reported to the credit bureaus by those who are issuing credit. Eventually, the credit report becomes a statement of an individual’s ability to pay back a debt.
In some cases, the same is true for businesses. When a business issues another business credit, it’s referred to as trade credit. Trade, or business, credit is the single largest source of lending in the world.
Information about trade credit transactions is gathered by the business credit bureaus to create your business credit report using your business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN), which you get from the IRS.
The business credit bureaus use this compiled data to generate a report about your company’s business credit transactions. In many cases, those issuing credit to you will rely on your business credit report to determine if they want to grant you credit and how much credit they’ll give.
The major business credit bureaus that compile and provide copies of the reports are:
- Dun & Bradstreet
- Experian Business
- Equifax Business
- Business Credit USA
Unfortunately, because the information provided to the business credit bureaus is sent in voluntarily–no business is required to send it in–the credit bureaus may never receive all or even any information about your business credit transactions. In fact, you could go for years racking up business credit without any of it being reported to the credit bureaus.
Establishing Business Credit
Let’s start by talking about your business credit score. Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or high considered excellent.
It’s important to note that there are many factors that affect a credit score; it’s based on more than just whether you pay your bills on time. Your score can be affected by the amount of available credit you have on bank lines of credit and credit cards, the length of time you’ve had a credit profile, the number of inquiries made on your credit profile and more.
The mistake many business owners make is using their personal information to apply for business credit, leases and loans. By doing so, they risk having a lower personal credit score.
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