If you own a business, then you’ll be interested to learn how to build a corporate credit. What are the steps you need to take to build a corporate credit? Why is it important to establish your company’s credit? Let’s discuss these two questions more closely.
What is corporate credit?
Corporate credit is used to define the credit history of a business, a company or a corporation. As the term implies, a sole proprietorship cannot apply for a corporate credit since it would too easy for anyone to declare that he/she is operating a business. To qualify for a corporate credit, a business needs to prove that it is a partnership, a Limited Liability Corporation (LLC) or a corporation.
Why is it important to have corporate credit?
As an individual, no doubt you are aware about the status of your personal credit history. Your credit history shows your track record in dealing with different creditors.
Obviously, an excellent credit rating would make you an impressive candidate for all lenders. On the other hand, a poor credit score would make you a high-risk borrower in the eyes of lenders. A poor credit would make it more difficult for you to get approved for new accounts or demand lower rates.
The same principles apply to businesses. By establishing a separate credit history for your company, you are building a solid foundation for your business. Thus, any time you need to get a business loan or a business credit card, it would be easier for you to get approved and choose lenders with the best deals.
Furthermore, having corporate credit protects your personal credit history from debt or damages in case the business doesn’t go as expected. Without corporate credit, you- the business owner- would be solely liable for all debts incurred in your business account. Failing to keep up with your payments would also affect your personal credit score. For this reason, entrepreneurs are advised to establish a separate business and personal credit history as early as possible.
How do you establish corporate credit?
Before applying for corporate credit, your business must have a valid physical address and a business telephone line. Secure all business licensing and permit requirements in your State or local region. Next, register your business with Dun & Bradstreet – a leading credit tracking agency for businesses.
See to it that all lenders and suppliers you deal with report your payments to the business credit bureaus as this is the only way to build up your corporate credit. You can also apply for a business credit card to build up your credit history more quickly. Again, make sure that your business credit card issuer regularly reports to the business credit bureaus.
Take note that your personal credit history would be checked when you apply for a business credit card. However, after a year or two, when you have built a separate credit history for your company, your corporate credit would be used for all your business dealings with lenders.