Building Credit Is a Smart Business Decision
Companies with strong business credit files can reap many benefits, because a business credit file helps convey a company’s image to others. For small businesses and startups especially, establishing a reputation can be an onerous task, but by establishing a reputation with a strong business credit file, entrepreneurs can actually solve many problems at once. Besides helping to establish a reputation, a business credit file can aid funding and contracting efforts, as well as help manage business risk and cash flow.
Because of how important your company’s business credit profile and overall reputation are, adhering to a good credit-building strategy can play a huge role in how your business is perceived by other industry professionals and corporate peers. The owners of Bjork Construction, a family-run residential and commercial construction company, know that relationships are the key to growing their business.
“Our success is based on the relationships that we are able to keep throughout the years, as well as establishing new relationships based on the credibility that strong business credit has helped us show,” explains Jean Bjork, President of Bjork Construction.
Get started with these tips for building a strong business credit file and reputation.
Key Components of a Good Credit-Building Strategy
1. A Consistent Identity
If you want your business to be viewed as a professional entity, then you should create a consistent identity. This means using the same business name, address, and phone number on all of your correspondence, invoicing, and marketing materials. Doing so will also help separate your personal identity from your business identity and help the business credit bureaus keep more accurate files on your company.
2. The Dun & Bradstreet D-U-N-S® Number
When a business owner or stakeholder checks another company’s credit profile, they do so using that company’s D-U-N-S Number. If your business does not have one, other professionals may not view your business as legitimate until it does. Hanson Ansary, CEO of event-planning company Global Management Services, doesn’t just wait for potential clients to look up his D-U-N-S Number – he actively promotes it. “We brag about our credit worthiness to our clients when we pitch our services for one of their events,” says Ansary. “We always tell them we are a reliable company and have solid credit scores, in addition to showing all the services we’re able to provide and our years of experience.”
3. Low Credit Balances and On-Time Payments
Paying bills on time can be the cornerstone of building good business credit, and keeping your business credit balances low or paid off also can have a major impact on the quality of your business credit scores. Ideally, your balance should not exceed 25 percent of your credit limit, even if you pay your balance off at the end of every month. Staying below that threshold could help improve your credit, and more companies may be willing to work with you if you show a history of conservative borrowing.
4. Credit Monitoring Tools
Because your business credit rating can change overnight, it’s important for you to keep track of these changes, so you can take the appropriate action if anything is amiss. Free business credit monitoring tools can notify you automatically when your scores and ratings change.
5. A Diverse Business Credit Report
Once your business credit is established, you should start working on expanding your profile to include credit accounts from various types of lenders. For instance, most businesses start off with a personally guaranteed business credit card and vendor lines of credit. After making timely payments on these accounts for a period of time, business owners may then try to get approved for a business credit card based solely on the business’s credit or they may apply for a small business line of credit at their bank. The more diverse your business’s credit file is, the better its credit score can be.
Building your business credit file is no small task, but the positive impact it can have on your company’s reputation cannot be understated. As your business grows and you begin to approach new challenges, such as getting a loan or securing a large contract, you’ll be glad you’ve already taken the time to establish your business credit and your reputation.