If you’re like 92% of small business owners, growing your business is damaging your personal credit score. This happens every time you, apply for business credit with your social security number, run up balances on your credit cards or get declined for credit.
Using your personal credit to apply for business loans, leases, or credit lines may be necessary in some instances, but you should try to avoid it in any way you can. This is where building business credit comes in.
One main purpose of starting a corporation in order to do business is to separate your personal assets and liabilities from your business’s assets and liabilities and when we get loans and lines of credit using out personal credit, this almost defeats the purpose. Although in the early stages of building business credit, you may be limited in the types of credit you get, using the credit available will help to free up cash flow in your business. Let’s say you have a vendor line of credit with an office supply company, by using this account for your office supply needs instead of cash, will free up cash that can be better used somewhere else. One of the major reasons for the failure of a business is the lack of capital. There is no real reason why you should not start taking steps towards establishing strong business credit. Here is a simple step by step guide that should get you started on building business credit:
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Step 1. Establish a business entity in your respective state.
Step 2. Structure your company correctly with the state, IRS and Credit Bureaus.
Step 3. Establish Credit accounts with Tier 1 creditors and use the accounts and pay them on time.
Step 4. Wait until these Tier 1 creditors report to the credit bureaus of you’re their positive experience with doing business with you.
Step 5. Establish Credit accounts with Tier 2 creditors and use the accounts and pay them on time.
Step 6. Wait until these Tier 2 creditors report to the credit bureaus of you’re their positive experience with doing business with you.
Step 7. Establish Credit accounts with Tier 3 creditors and use the accounts and pay them on time.
Step 8. Wait until these Tier 3 creditors report to the credit bureaus of you’re their positive experience with doing business with you.
Step 9. Establish Credit accounts with Tier 4 creditors and use the accounts and pay them on time.
