Whether you’re just launching your brand or just starting your business credit journey, this overview will guide you through the process of building credit for your business. 

Start with Good Personal Credit 

Building credit for a sole proprietorshipA business owned and managed by one person who has no separate legal distinction or employer identification number. They may have employees or a brand name but they use their own individual tax identification. More is different from building credit for other business entities. Both typically begin by using the founders’ personal credit but once that credit is established, sole proprietors are done. LLCs and Corporations, however, have to build a separate credit profile for their entity too. 

Sole proprietors are typically contractors who use their social security numbers to file income taxes. Other business entities use employer identification numbers that are different from the owners’ social security numbers. They file taxes and are taxed differently. They have different legal and reporting responsibilities. They have different pros and cons but neither is particularly hard. They just take time. So whatever your business structure, start with your personal credit.

How To Build Your Personal Credit

If you’re starting with little or no credit it’s important to build a positive credit history. I had the pleasure of speaking with Andrew Monticone about the best way to do so. He suggests opening 3-4 low-limit credit cards, using no more than 20% of their available credit each month, then paying each one off in full every month. This method could improve your score in as little as  3-6 months.

If you’re starting with poor credit. Getting negative items resolved and removed is the top priority. It may involve disputing records, paying off debts, and contacting creditors but it’s not very difficult. It just takes more time. Pace yourself and be diligent. You may want to begin a budget to plan for paying off those debts. If so, start with our free online course, How to Start Budgeting in Airtable.

Poor or no credit history may limit you to secured credit cards that require a pre-paid balance. Be prepared to pay $50-300 for these. Whatever the card, Andrew Monticone recommends staying away from annual fees. Then, when you can, upgrade to cards with rewards and/or cash back. 

Whatever your standing, a great place to start saving or building credit is a credit union. These often-overlooked, membership-based nonprofits reinvest in their members rather than paying stockholders dividends. So they typically offer lower rates and more free services than traditional or community banks. Of course, you may have to sacrifice big bank features like the latest technology or international reach but they’re often a good fit for most people who are just starting out. Membership is usually based on residence, school, or workplace so a quick Google search or asking an administrator may provide your local options.

Practical Personal Finance explains in detail in the following video:

https://youtu.be/EqilPaAGU5g

Building Business Credit As A Separate Entity 

When a business entity doesn’t have a credit history, many lenders will use the owners’ personal credit as a reference. So, again, either way, it’s important to start with your personal credit. Many entrepreneurs use personal credit to start their business voluntarily but another option is to use vendors who offer lines of credit. These are typically easier to get than business credit cards and popular brands like Home Depot, Lowe’s, and Staples, for example, offer invoicing with up to 30 days to pay. The invoice must be paid in full within 30 days so they report to credit bureaus.  

Of course, the final option is a loan. Business credit cards are small, revolving loans so we’ll include them here. As with personal credit, those with little or no credit may need to start with a secured credit card or loan. Loans, unlike cards, typically require a year or more of financial history so be prepared to have your bookkeeping reports ready. The are quite a few differences between secured and unsecured loans so here’s Practical Personal Finance, once again. with more:

https://youtu.be/3nTFI-kroB8

How To Use Credit Cards and Loans Wisely

The best way to utilize any credit card or loan is to avoid paying interest and fees. Like most of our #ManagementMonday tasks that are easier said than done but knowing what to do is the first step to practicing. Watch this video from Practical Personal Finance to learn why or scroll down for a summary:

https://youtu.be/7ZsYDwuwuw4

1. Pay your balance in full to avoid interest. Payments as late as two days can start earning interest and it adds up. Late payments can also nullify your grace period.
2. Plan purchases ahead so you only buy what you can pay for immediately in cash. This will help avoid missing payments and insure you can pay your bill in full.
3. Avoid cash advances and balance transfers because they may not offer grace periods
4. If you have a balance, pay as often as you can. Reducing your average daily balance will reduce your monthly interest payment.

If these tips are helpful, head over to YouTube to give Practical Personal Finance a thank you, like, or subscribe.

Start Budgeting Now for Free

Be sure it’s the right time for a credit card by establishing a budget in Airtable for free. Airtable makes it easy to start a personal or business budget for a business, film, or event with visually appealing, free templates. Start now with our free online course, How to Start Budgeting in Airtable.

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