This post originally appeared on Inc. on Nov. 21, 2016
You can’t afford to wait any longer to fatten up that credit file. You may not see the need for more financing today, but tomorrow will be here soon enough, and with it a host of setbacks and opportunities you never could have predicted.
Here are two easy tips for getting started:
1. Learn your business credit scores and how to interpret them.
According to the U.S. Small Business Administration, insufficient capital is the second most common reason for small business failure. Nav conducted a survey of small business owners and discovered these four key findings:
- 45% of small business owners who are denied financing get turned down more than once. 23% don’t know why their applications were denied.
- Small business owners who understand their business credit scores are 41% more likely to be approved when they apply for a business loan.
- Small business owners who understand their credit profile are 31% more likely to consider expanding their business.
- 45% of small business owners don’t know they have a credit score, while 82% don’t know how to interpret their score.
If you know how to use business credit to your advantage, you’re likelier to have access to more capital—with better repayment terms—than someone relying on personal credit cards or loans from family and friends.
Procure a copy of your business credit report and learn how to read it. Know your business credit scores and keep an eye on them.
A Wall Street Journal survey from 2013 showed that 25% of small business owners who checked their credit reports found errors that brought their scores down.
Lowered scores can hurt your chances of finding low-cost financing and disqualify you for the lowest business insurance premiums or even contracts with the federal government, etc. Stay on top of it.
Pro tip: What you don’t know can kill your business
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2. Open a few credit accounts and make your payments early.
To build your business credit score, you need accounts that report to certain warehouses that collect business data, such as Dun & Bradstreet, Experian or the Small Business Financial Exchange (SBFE).
These could include accounts with suppliers and vendors, trade accounts with large companies, business credit card payments, merchant cash advances, lines of credit and loans. Your business credit reports should tell you which accounts you have on file and whether they’re reporting properly.
Since payment status is the most important factor when it comes to business credit scores, make sure you’re on time with all your payments. Even better, pay early. Some scores, like the D&B PAYDEX, require early payments to reach a perfect score.
That said, don’t worry about shooting for perfection right away. Your goal should simply be to fatten that credit file and reach a score in the low-risk category.
It’s OK to start small. Stay consistent and alert.
When I began building my business credit nearly 20 years ago, American Express made me mail them a $200 deposit before granting me a $200 credit account. Over the years, as my credit history developed, that original creditor expanded my credit access until it reached a peak of $200,000.
If I can do it, you can too.
Don’t let an unforeseen cash emergency—or opportunities like adding talent and implementing new systems—force you into paying attention to your business credit score. By then, it’ll be too late.