Your credit score can either be a blessing or a curse when it comes to functioning in today's society. Buying a car, taking out a mortgage, or paying for school can all be relatively painless if you have a great personal credit score. Unfortunately, for those of you with poor credit, managing your finances can quickly turn into a nightmare when your credit score starts to drop.  Pressure like that can make the financial burden of starting and running a business quite daunting.  Fortunately for entrepreneurs, you have the unique opportunity to build and maintain business credit in addition to your individual credit score. 

What is business credit?

Understanding the specifics of establishing and tracking business credit, and how it can affect the financials of your business, is often confusing.  The bottom line is: business owners don't have to rely solely on personal credit.  Similar to an individual's personal credit score, business credit is used as a statement of the business' ability to pay back any debts.  Business credit, or trade credit, is used on a much larger scale than personal credit and accounts for the single largest source of lending in the world. 

When a business issues another business credit, they are given trade credit.  Business credit bureaus gather information on trade credit transactions and produce business credit reports, similar to those reported by personal credit bureaus.  Credit bureaus use business' name, address, and EIN (given by the IRS) to generate these reports.  Credit Issuers then use these reports to decide approval as well as how much credit to issue approved businesses.  

What affects my business credit?

A business's credit score is based on many factors so you have to consider more than simply paying bills on time.  The amount of credit you have available, the age of your credit profile, and the frequency of inquires made on your profile all affect your overall score.

For more information on what can and cannot affect your business credit, check out the Federal Trade Commissions alert on Getting Business Credit.

What is a considered a good business credit score?

Unlike personal credit, which is distributed on a scale from 300 to 850, business credit is awarded on a scale from 0 to 100.  A score of 75 or above is widely considered a very good score. 

Is it difficult to establish business credit?

Establishing business credit can be tricky because the information used by credit bureaus to create your profile is sent in voluntarily by the supplier.  Basically, since no business is required to send in information on your credit transactions, you could spend years acquiring trade credit without your business credit bureau knowing.  It's best to do business with companies that you know will follow through with their end and report your transactions.

Also, try to keep your business and personal credit as separate as possible.  Try finding companies that will make business credit transactions with you while keeping your personal credit information out of it.  When companies require personal credit information, generally the number of inquires made on your credit increases and it will have a negative affect on your personal credit score.

What steps can I take to begin to establish business credit?

1. Apply for an EIN number through the IRS
2. Register with major credit bureaus
3. Be sure to comply with market credit requirements
4. Prepare financial statements for potential credit grantors
5. Begin to make business credit transactions with companies that agree to report your activities
6. Make your payments on time, make sure they are reported, and rack up your business credit!