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How to Use the ‘Rule of Three’ to Create a Business Credit Profile

How to Use the ‘Rule of Three’ to Create a Business Credit Profile

By Marco Carbajo, Guest Blogger
Published: January 20, 2017

Did you know a business credit profile plays a direct role in a company’s ability to obtain credit that it can use to purchase products or services?

Whether you are a startup or existing business it’s essential to gain access to credit so you can take advantage of the convenience and leverage that is provides. A good business credit profile enables a company to save money since lenders offer better rates on financing to businesses with healthy business credit reports.

A good business credit profile is essential to gain access to the funding you need to successfully operate and grow your business. Good credit is the lifeline of a business and it can reduce the stress on you and the company knowing that you can get the money you need with confidence. “Just as your personal credit has a big impact on your financial health, your business credit can help you get competitive business loan rates and terms from potential suppliers,” says Marc Kirshbaum, president of Experian's Business Information Solutions group.

How do you create a business credit profile? Here we’ll cover three simple and proven steps for creating a business credit profile using the rule of three.

Step #1 Formalize your business structure – Setting up a legal business entity such as a corporation or limited liability company is the first step to separating the business from your personal finances. Once you formalize a business structure, you will need to obtain an employer identification number (EIN), which is a nine-digit number assigned by the IRS to business entities. This number will be the number used to create a business credit profile with reporting agencies such as Dun & Bradstreet, Experian Business and Equifax Small Business.

Step #2 Acquire credit in the company’s name – The key to building your company’s creditworthiness is by establishing positive payment history with suppliers, lenders, service providers and credit grantors. The easiest type of credit to acquire is known as trade credit which allows a business to purchase products up to a set credit limit and pay for the purchase within 30 days known as net 30 terms. Remember, any agreements your business has with service providers are all credit arrangements which can be used as trade references on credit applications.

Step #3 Pay your invoices on or ahead of the due date – How your company pays its financial obligations are one of the most important factors that impact your business credit profile. Make it a priority to pay all invoices on or ahead of the due date. When the business pays according to terms or better than terms, it shows banks, lenders and suppliers that it properly manages its financial obligations. One of the best ways to ensure that your company pays its bills on time is by signing up for an automatic bill pay service.

On a final note, a business credit profile plays a major role for setting terms on business lines of credit, loans, insurance premiums, lease payments and supplier based credit. By establishing a good business credit profile a company will position itself for greater financing opportunities, better terms and interest rate offers.

About the Author:

Marco Carbajo
Marco Carbajo

Guest Blogger

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in 'Fox Small Business','American Express Small Business', 'Business Week', 'The Washington Post', 'The New York Times', 'The San Francisco Tribune',‘Alltop’, and ‘Entrepreneur Connect’.