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Month: March 2016

Characteristics of a Small Business with Good Credit

 

Imitation is the sincerest form of flattery. Small businesses trying to build up or improve their credit profile can do so my mimicking the characteristics of companies with good credit.

 

High Credit Score

Small businesses with good credit have high scores. Achieving a high credit score is a result of accumulating a strong credit history that is without negative factors.

 

Long Payment History

The optimal way to earn a high credit score and strong credit profile is to have a lengthy history of making payments to creditors and lenders. Payment history is one of the most significant factors in credit score models. A history of consistent, timely payments will go a long way toward building a good credit. Companies with good credit almost always have an extended payment history.

 

Multiple Credit Accounts

Companies with good credit frequently have multiple accounts. The reason is that several accounts (and various types of credit) demonstrate a company’s capability of servicing diverse lenders and creditors. Also, more credit provides greater opportunity to build a long payment history.

 

No Tax Liens, Judgments, or Collections

The absence of negative factors, such as tax liens, judgments, collections, bankruptcy, and other claims, is indicative of a company with good credit. The existence of one or more of these factors not only lowers a company’s credit score, it increases the financial risk that lenders are wary of.

 

Limited Inquiries

Companies with good credit do not have a large number of inquiries. These are credit checks that are performed by lenders and other uses of credit information. A high number of inquiries are suggestive of a company that is frequently applying for credit, and possibly being turned down often (the reason why a high number of inquiries are being run). Small businesses should know that certain types of inquiries, like unsolicited promotional offers by credit card issuers, do not count against a credit profile.

 

There’s no secret formula for obtaining good credit. Any company can build a strong credit profile. New businesses, as well as those with less than stellar credit, should try to mirror those that have a high credit score.

Steps To Building Business Credit And Positive Credit Scores Before You Establish A Business

 

 

Credit rates right now are incredibly low and banks are eager to give people with solid business plans capital to start up their business. However to access that money you’ll need to work at building your business’ credit to make it an appealing target for investors. Banks and other lending companies will do their due diligence before deciding if your business is a worthwhile investment for their money. Here are a few tips for making sure you can get the money your business needs to succeed.

 

Have a Strong Business Plan

A business plan is a document that describes your business in detail: how it will function and succeed, what resources you’ll need, and a long-term plan for the business. Quick research can come up with several guides for composing a business plan that will appeal to investors. Remember, they haven’t been with you while you designed the business. You’ll have to sell it to someone and make them care about your idea.

 

Fill Out the Right Paperwork

Your small business, like a person, will require a lot of care and paperwork when it’s born. Remember to incorporate your business and obtain a Federal Tax ID #. This is the birth certificate and social security number for your business and will represent your business when you’re applying for credit.

You’ll also want to register with Business Credit Bureaus. These privately held companies function just like the big three consumer credit agencies. Business Credit Bureaus are an essential part of building business credit and allow you to directly monitor how banks and other lenders will perceive your company.

 

Consider All Credit Sources

There are a lot of different ways to obtain a line of credit for your small business. One of the first that comes to mind is the business credit card. Every credit card company worth trusting with your information will offer a business credit card structured differently from a personal credit card. These cards will have higher limits and lower interest rates and will frequently come with other tools to help keep your business running smoothly.

Vendor credit is another credit source that might work for your small business. Consult your vendors and ask about any credit programs they offer to companies that purchase from them. These vendor lines of credit attach you to a company that has everything to gain from your company’s success and can improve the relationship between your small business and your product supplier.

It is important to maintain diverse lines of credit as each credit type affects your credit rating in a variety of ways. Diversifying these sources of credit will insulate your business from the affects of defaulting on one credit type or any other fluctuations in payment.

 

Use Common Sense

Remember to build a solid payment history. All the diverse credit types in the world are worthless if your business doesn’t look like it can pay back its loans. Stay on top of your payment schedule and pay in advance if you’re able. Lenders will be more inclined to loan credit to a business that looks like it has everything together.

Also, remember to stay informed about changes in rates and credit types. Subscribe to newsletters or magazines that deal with this information and research it on the internet. Good credit is essential to building a solid business so you can’t do too much research on it.

With these tips in hand get out there and start building business credit.