Every business often faces challenges that can affect growth and expansion. Sometimes, the answer to these challenges can be financial. But what can you do when the funds are not readily available? Loans and partnerships can help. To secure any loan amount, you need a good credit score. A significant benefit of a strong credit score is loan approval and access to better business opportunities.
Investors prioritize business credit over personal credit, highlighting the need to build strong business credit. As a business owner, using your credit puts you at risk if your business is in trouble.
So, how can you build strong business credit? This article will show you how to use a business credit card to raise your business credit effectively.
Understanding Business Credit
Your business credit determines whether your company can be trusted in financial matters. It is a track record of your company’s history of buying something now and paying for it later. Three central credit bureaus assign credit scores to businesses: Dun & Bradstreet, Experian, and Equifax. They assess your business credit score to determine how worthy your business/company is with financial opportunities.
Strong business credit means better loan options, high credit limits, and lower interest rates. Good credit can even help you negotiate better terms with your suppliers. However, you need a credit card to get started.
Consider consulting a financial advisor to select the best business credit cards for your business. Then, go ahead to apply. You must have a registered business entity and an employer identification number for your application. If you have your credit card, let’s look at how to build your credit score with it.
Ways of Building Your Business Credit with the Business Credit Card
More than having a business credit card is required to build your credit score. Certain things must be done to reap the benefits of having a solid credit score for your business. They include:
- Spending Wisely
The first step for anyone looking to build their business credit is wise spending. Business and personal finances get mixed up when there’s no wise spending. No investor would see personal transactions on a credit card and still go ahead with investing. This red flag shows that such business owners can’t be trusted with finances.
When you mix business and personal life, there can be confusion. It makes tracking your purchases and spending challenging, and managing your finances becomes an uphill task. Therefore, as a business owner, learn to separate your business and personal life. Avoid making any personal transactions on your business credit card. Let the card be strictly for business, no matter how tough things are in your personal life.
- Timely Payment
Timely payment is a crucial aspect of business credit. Failure to make payments when due sends the wrong signals to lenders and other financial agencies. Making a late payment can result in higher payment fees and, most importantly, harm your credit score. To curb this, set up automatic payments and reminders for your payment. Automatic payments will ensure you get all the due dates, as the money is deducted independently. Reminders help you stay on the top of your game regarding payments. All these contribute to giving you a solid credit score.
- Credit Utilization Ratio
Another way to use your business credit cards to improve your credit is by managing your credit utilization ratio. What is the credit utilization ratio? It is the percentage of your available credit at any given time. Studies have shown that keeping it at 30% or less is best. For instance, if you have a credit limit of $10,000 on your card, you should always spend less than $3000. Yes, even if it’s for business. Doing so improves your credit score and shows you’re independent of your available credit. It shows a responsible credit management style.
Conclusion
Every business wants easy access to loans and several financial opportunities—one way to ensure that is having good business credit. Your credit card has a role to play in building good business credit, and it involves wise spending, timely payment, and managing your credit utilization ratio. While it may take time, it is a healthy approach to building your credit and opens doors to better business opportunities for your business.
