Boosting Your Business Credit Score the Right Way

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MP recently sat down with Rod Griffin, Director of Consumer Education and Advocacy for Experian. He is responsible for Experian’s national consumer education programs and outreach. Rod serves as an expert spokesperson on consumer issues, particularly credit reporting, credit scoring, and identity theft, and is frequently quoted by national television, print, radio, and online media including the New York Times, Washington Post, CNBC.com, MSNBC.com, Time Magazine, and other national media outlets.

MP: What are the best ways to build business credit separate from one’s personal credit?

RG: The best ways to build business credit are similar to how a consumer builds personal credit except for a few extra steps. To build business credit, a person needs to establish that business as a legal entity so account information is reported to the business credit report, not the owner’s personal credit report.

The owner should incorporate the business or form an LLC (limited liability company), get a federal employer identification number that serves to identify the business entity and open a business bank account. Make sure you use your legal business name.

Then the steps are the same: make sure the business pays its bills and pays them on time and be careful of utilizing too much of available credit. This will allow the business to have a strong credit score which opens the door to lower insurance premiums or interest rates. At the same time, it will separate the business accounts from a small business owner’s personal credit history, helping protect them from personal financial liability.

Do businesses have credit scores? If so, how do they work? If no, why not?

Yes, businesses have credit scores. Similar to consumer credit scores, competing organizations create and sell different business credit scores to lenders. The lenders can view business credit reports which have business credit scores. Some lenders and vendors may also turn to specialty business credit reports when evaluating business applications.  

How can entrepreneurs obtain business credit with limited credit history?

Often, small business owners use their personal credit to underwrite their initial business expenses. If you do, you must be diligent in repaying that debt because it will affect both you and the business. Contact the Small Business Administration (SBA) for guidance. Local offices may be able to assist with funding or point you to organizations that can help. Another option may be to go to a non-profit business lender or a Community Development Financial Institution (CDFI) for help. Many offer loans and financial resources to help start a small or micro-business.

How can entrepreneurs obtain business credit without a personal guarantee?

There is always a first step and it’s not difficult to get started.  Once the business is established, an owner can build up credit by having accounts and vendors report payments to the credit reporting agencies. For example, a business credit card can be a start. In addition to opening a business credit card, an owner can open accounts with vendors that report payments to the credit bureaus.

Check out Rod Griffin’s article on how to improve your personal credit.