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A Field Guide To Establishing Creditworthiness For Startups

Financing a business comes with several challenges, especially if your personal credit score is below 630. However, most startups can still establish business creditworthiness with bad credit. Credit score aside, building business credit for your startup is a lot like building personal credit.

5-Step Guide to Establishing Business Credit for Startups

If you want to establish business credit for your startup, you have a lot of options. In this 5-step guide, we’ll show you how to go from a low (or zero) credit score to an exceptional one.

Step 1: Run a Business and Open a Business Bank Account

If you’re a sole proprietor or you run an LLC, C corp, or S corp, you can open a business bank account. If you haven’t established any business credit, banks will look at your banking history before opening a new account. They typically won’t check your personal credit score or report.

Now that you have this account, you can start building credit and financing your small business. Don’t forget to connect a credit monitoring app to your business account, as it’ll help you keep track of your credit score. Finally, never use a business account for personal purchases.

Step 2: Use Your Business Bank Account Responsibly

A business bank account gives business owners a chance to build credit so long as they manage their finances responsibly. Make sure you don’t overdraw your accounts or write checks when you have insufficient funds. Use this account to make payments and regular deposits.

If you have a low personal credit score, you can still build business credit with a secured loan or credit card. In 6 months, lenders won’t assess your business’s creditworthiness based on your personal accounts. From there, you can use your business credit score to apply for loans.

Step 3: Get a Low-Limit Credit Card or Business Loan

To raise your credit score as quickly as possible, apply for a low-limit business credit card. Even if you have fantastic personal credit, you should never raise your credit card limit to something unaffordable. If you can comfortably pay off a $500 balance each month, don’t go any higher.

Remember: a business card should only pay for business purchases and low-cost items. A $300 content marketing project would be appropriate for a credit card. A low limit gives you more wiggle room to pay off the whole charge, so you can keep building your credit score safely.

Step 4: Establish a Credit History and Keep Up With Taxes

The big three business credit companies, Experian, Equifax, and Dun & Bradstreet, use a slightly different scoring method. All three use a 0 to 100 scoring method. The ideal score is 20 to 30, which you’ll get if you pay bills on time, reduce your debt, and avoid legal trouble.

Keep in mind that the business credit scoring system still uses many of the same personal credit factors to assess creditworthiness. For example, if you don’t keep up with your tax payments, the IRS could report it to your personal and business credit bureaus, so be extra careful here.

Step 5: Expand Your Credit Portfolio as Your Business Grows

The last step to establishing creditworthiness is consistency. Be sure to maintain a good personal and business credit rating as your business grows. At some point, your success may outpace your finances, which is the best time to loan money you can’t pay off right away.

Seasonal commercial loans, term loans, business lines of credit, and installment loans are available to startups (and with a low-interest rate) if you have a decent credit score. Expanding your credit portfolio will help build credit, so long as you don’t take on too much debt.

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