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6 Ways to Establish and Maintain a Healthy Credit Score for Your Startup or Small Biz

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6 Ways to Establish and Maintain a Healthy Credit Score for Your Startup or Small Biz

By Caron_Beesley, Contributor
Published: February 6, 2012 Updated: April 30, 2012

Establishing good credit is essential if you intend to apply for a business loan. But it’s not just for loans anymore – a good credit score can also help you:

  • Secure a business credit card
  • Open a merchant account
  • Benefit from lower insurance premiums
  • Build relationships and get flexible payment terms from suppliers
  • Rent commercial property
  • Lease or buy business vehicles

But how do you establish and maintain a healthy business credit score? What if your personal credit score isn’t as good as it should be? Can that impact your ability to build business credit?  This article includes tips for building your small business credit score.

First, however, you need to understand how business credit is measured.

How Business Credit is Measured

Business credit is calculated using what’s known as your Paydex Score – the business equivalent of an individual’s FICO score. Creditors and banks will check your Paydex score to see if you are a risky investment before they’ll extend loans and credit. But what is Paydex?

Maintained by Dun & Bradstreet (D&B), a Paydex score is “…D&B's unique dollar-weighted numerical indicator of how (a) business paid its bills over the past year, based on trade experiences reported to D&B by various vendors.” Unlike your personal credit score, which is determined by several different factors, Paydex scores your business solely on whether or not you paid your bills promptly and within agreed-upon terms. Paydex is used by business credit bureaus to rate your business credit, although these organizations (D&B, Experion, and Equifax) also take into consideration other factors when weighing your overall score.

How to Build and Manage Your Business Credit Score

There are several practical steps you can take to establish and build both your Paydex score and general business credit score:

1)  Register for a Tax Identification Number

If you are a sole proprietor, consider incorporating your business. This will legally separate your personal finances from those of your business so that you can build a separate credit history. Next, apply for a tax identification number from the IRS. You’ll use this to file your taxes as an incorporated business and to register your business with credit bureaus such as D&B.

2)  Get a DUNS Number

If you are starting a business, get a jumpstart on building your credit history by applying online for a DUNS number at D&B’s small business iUpdate portal. This nine digit code is used by D&B and other credit bureaus to identify your business and maintain a credit file against it. If you already have a business credit file with D&B be sure to review it and correct any inaccurate information.

3)  Apply for Credit From Suppliers

According to business credit specialist Marco Carbajo, the best place to start building credit as a startup is with suppliers. You can do this by applying for lines of credit to finance purchases such as office supplies, computers, inventory and so on, with flexible payment terms of net 30 or 60 days. Carbajo advises that you choose suppliers who you’ll likely deal with on a regular basis so that you can continue to build and maintain your credit (as long as you pay them on time!).

4)  Separate Personal and Business Finances

Further separate your business and personal finances and start building a business credit score by opening a business bank account and putting expenses in your business name. You should also apply for a business credit card. Start by approaching your existing bank or credit card issuer – since you already have a relationship with them, approvals should be easier. This blog has some tips and considerations to be aware of before choosing a card.

5)   Pay Your Bills on Time!

Since your Paydex score is based on your bill payment habits, never miss a payment date. If your cash flow can tolerate it, you could also consider paying your bills ahead of time to increase your Paydex score!

6)   Monitor Your Score

According to D&B, the credit score of about one in three businesses declines over just a three-month period. So, plan on monitoring your credit once a quarter so that you are aware of what’s happening and how it might affect relationships with suppliers and lenders.  It’s also a good habit to review your credit file to make sure it’s current and accurate. Any changes to your business, such as location, number of employees, outstanding suits/liens and revenue – can impact your credit rating.

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About the Author:

Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Comments:

I have noticed that you have to pay to play with DnB whereas you do not have to pay to play with Experian. DnB has a credit builder program in which they verify your business trade references. Luckily i paid to get in. However, on the other hand, Experian Intelliscore does not seem to be pay to play. I have an established Intelliscore without paying any company. http://www.experian.com/business-information/credit-risk-management.html I have found that www.creditera.com is a valuable website to monitor both personal and business credit.
Caron, we are an LLC without revenue yet. What can I do today to start building the company's credit score? My bank tied my corporate card to my personal credit score (so its not really corporate), so should I open a corporate credit card at Staples to start putting purchases on that account, for example?
paying your bills ahead of time to increase your Paydex score. i know that, but the fact that not always we have enough money to paid for the bills. have you ever made this situation
Very well written article. This is an important area -- especially for Business in yr. 2-4 of Start-Up Phase... need a CPA involved at $1mil. in Revenues or more... Tax Strategies and Strategic planning are critical to long term success....
Great post about business credit. I had no idea about the Paydex Score. Looks like I need to get a business credit card.
This is a really great article. It's hard to find good material out there on business credit, so many people don't know the difference between personal and business credit!   Best,   Meredith Wood This post was edited to remove a link. Please review our Community Best Practices for more information about how best to participate in our online discussions. Thank you.

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