It’s no secret that lack of or improper financing can surely kill your business. With plenty of financing options available, it’s often difficult to decide which is the best option for you. That being said, you definitely want the ability to take advantage of every option. A great alternative financing option for small businesses is to extend a line of credit. In order to do so at an affordable rate, you’ll need to follow these steps to establish and maintain a good business credit score.
Separate Business and Personal Expenses
Most business owners will incorporate their business so they can mitigate liabilities. Even if you’re a sole proprietor, you should still obtain your EIN number and register your business with state agencies so you can obtain proper business licenses.
It’s always best to consult with a tax expert before changing the legal structure of your business. Different legal structures will work better for different types of businesses.
Regardless the size of your business, it’s probably a good idea to open a business bank account and apply for a business credit card. Since card issuers assume you’ll spend more on a business card, you will have access to more enticing rewards than you would see on a personal card. Just make sure you are very disciplined on keeping personal credit card payments separate from business expenses.
Keep a Good Standing
The majority of credit card scoring models consider payment history as the biggest factor in your overall rating. Try your best to make all of your payments on time. I suggest setting up an auto-pay from your business bank account that will automatically clear your account balance at each closing date. If you are planning on extending a line of credit, make sure you don’t take too long to pay off the interest because it will hurt your credit score as well as your bottom line.
To earn the highest balance, you’ll need to pay your balances early. For example, to earn the highest D&B Paydex Score, you’ll need to consistently make your payments early. Remember, you can always carry a negative balance on your credit card, which ensures that you’re on top of your payments.
Stay on Top of Your Scores
There’s no limit to how many times you can check your credit scores. In fact, you should check them at least once a month. Most card issuers offer complimentary reporting features that allow business owners to extensively review their credit and payment history. If there are any discrepancies, you can easily identify and fix them before the problem gets worse.
As your credit score goes up, you may also be eligible for better perks and rewards. As your score increases, inquire with your card issuer about newly available rewards packages.
If you’re looking to finance your business with a credit card, you’ll definitely want to stay on top of your credit score. If you follow these three steps to the tee, you should have no problem establishing and maintaining a rock star credit score for your business!