Many small businesses owners rely on their personal credit to secure funding for their work. But savvy owners know that personal credit is just a starting point: Those who work diligently to get and strengthen a commercial credit score put themselves in a better position to secure more credit, lower interest rates and better loan terms.
Perhaps most importantly, says Adam Fingersh, senior vice president of business information services at Experian, a strong commercial credit score will allow you to make a meaningful separation between your work and personal finances. Eventually, you’ll be able to get credit backed solely by your business financials, instead of a personal guarantee required by most small business credit cards. “If something negative happens on the personal side of your life — a loan delinquency or a foreclosure, for example — it doesn’t negatively affect your ability to get funding for your business or vice versa,” Fingersh says.
Like a personal credit score, commercial scores have lots of moving parts, and many of them have an impact on your final number. To get a high score, know — and follow — the eight guidelines here.
1. Understand what you’re looking at. A commercial credit score is between 1 and 100 and represents a percentage; a score of 90 means your credit risk is better than 90 percent of similar businesses. “The score takes into account financial and nonfinancial transactions and looks at other businesses in your industry and geographical area,” says says Rohit Arora, founder and CEO of Biz2Credit. “It’s a weighted mean based on all of these factors.”
2. Use your Tax Identification Number (TIN). Your commercial credit score typically starts the day you incorporate your company or officially get a tax identification number. “Any place you use your TIN number — to sign up for utilities, to start a relationship with a supplier or vendor — is a data point on your score,” explains Arora. Use this number, as opposed to personal credit information, to create a more robust credit file for your business.
3. Pay reliably. As with personal credit scores, paying bills on time is the best way to build your credit score. Delinquent payments can have an immediate and significant negative effect on credit scores.
4. Be patient. If your score is lower than you want it to be because it’s a thin file or you’ve bungled a payment in the past, don’t expect improvements overnight, says New York attorney Leslie Tayne. “There is no quick fix,” she says. “You’ve just got to keep doing do the right things — paying bills, getting credit, paying it off — over time.”
5. Find overlooked problems. Sometimes, a deep dive into a commercial credit report can show small but critical problems that can be easily resolved. “Maybe your business is using an automated system that pays your utility bill five days past due every month because the payment cycle is set up incorrectly,” says Fingersh. You might be surprised to learn your corporate filing has lapsed, or there’s a lien or judgment against your business. Some fixes may take minutes to get you back on the right path.
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COMMERCIAL CREDIT SCORE
An array of companies collect your business’s financial information. Two companies associated with personal scores, Experian and Equifax, offer commercial scores. So does industry heavyweight Dun & Bradstreet (D&B). Scores from each of these companies can be ordered directly from their websites. Though the process isn’t hard, it’s not free. You’ll typically either pay a one-time fee of about $35 to $100, or purchase monthly monitoring, which starts at about $20 a month. If you’re checking your report only to fix an error, however, you won’t be required to pay a fee.
6. Check for errors. Just as personal credit reports sometimes contain erroneous information, so can commercial credit scores. If something doesn’t look right, contact the credit bureau and the company that’s misreporting the information to get the problem resolved.
7. Make sure everything is being reported. If you’ve had a long-term relationship with a vendor or supplier, ask them to report the information if you don’t see it on your report. “You want to make sure that the businesses that you have credit relationships with are reporting your information,” says Fingersh.
8. Don’t improve blindly. It’s smart to try to secure a high commercial credit score, but if you have a specific goal in mind, don’t leave it to chance, says Tayne. “If you know you’re going to need significant credit for something a year from now, talk to the agency [you want to extend you credit], and ask, ‘What would you want to see on my credit report?’ Once you know that specific goal — whether it’s to clean up your credit or bring your score up — it’s easier to achieve.”