Well, that went by fast. 2016 is taking a bow, with 2017 waiting impatiently in the wings. Small business owners across the country are scrambling to prepare for the last hurrah of the holiday season.
And then it’s time to start the whole thing over again.
Research tells us that less than 10% of people who make New Year’s resolutions succeed in achieving them. That’s not exactly surprising—most of us are creatures of habit, bad as well as good.
But if you’re like me, and you can’t quite bring yourself to start thinking about exercise right now, consider setting one of the healthiest goals possible for your small business instead.
Firmly decide that 2017 will forever be known as the year you established a good business credit score. You can do it in four proven steps.
1. Separate Your Business and Personal Finances
If you haven’t yet incorporated your business, consider doing so. Not only will you receive tax benefits, you’ll help protect your personal assets from business debts and losses. Sole proprietors should get an employer identification number (EIN) and register their business with state and/or local agencies, and obtain proper business licenses.
The next step is to open a business bank account and start using a business credit card in place of your personal one. This will help you avoid dipping into personal funds to subsidize your business. It will greatly simplify the tax process, and you won’t be risking your personal credit if you can’t make an on time payment involving business purchases.
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2. Establish Business Credit Accounts
To establish your business credit history, you need accounts that report your payment history to commercial credit agencies like Dun & Bradstreet and Experian. Your new business credit card is the easiest way to start. You can apply for one based on your personal credit and finances.
According to a survey conducted by Manta and Nav, more than two-thirds of small business owners don’t have a dedicated business credit line. Business credit lines offer a flexible way to cover cash emergencies without having to make payments when you’re not using the line.
In addition, it’s important to do business with lenders, suppliers, and vendors that report your payments to the credit agencies. To make sure they’re doing so, get your free business credit report from Nav and learn how to read it.
3. Maintain a Good Payment History
Your payment history is the most important factor in the majority of commercial credit scoring models, so set a goal to pay all your bills early or on time. To earn the highest D&B Paydex Score, businesses must be consistent about paying early.
Since some lenders also evaluate income and cash flow—from bank checking accounts, credit card receipts, etc.—maintaining a steady cash flow can add to your funding options when you need them, even though that factor doesn’t directly affect your business credit scores.
4. Know Your Scores and Check Them Often
You can’t be penalized for checking your own personal or business credit scores, so watch them like a hawk. Besides giving you the big picture of the overall health of your credit, these scores can alert you to discrepancies that might be damaging your credit file.
If you notice a sudden drop in your business credit score one month, for example, this might be due to a reporting error that you can correct. You want to catch such errors as early as possible, and the only way to do that is to stay alert.
At Nav, our fundamental resolution for 2017 isn’t new at all. It’s the one we’ve had since the beginning: to materially reduce the small business death rate in America by providing free credit reports, scores, and monitoring, as well as cutting-edge tools to help you access the best financing for your business.
We’re grateful that you’re joining us in that enterprise, and wish nothing but the best for your and yours as 2017 unfolds. Happy New Year.
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This article was originally written on December 27, 2016 and updated on January 27, 2021.
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