Just as your personal credit score is built on the basis of your personal financial history, likewise, a business credit score is built on a business’s financial history. Business financial history could include various lines of credit, payment history of business credit card, loans undertaken by business, length of credit history and how you’re using your loan. In India, similar to the personal credit score, a business credit score range is from 300 to 900 where a good score is considered above 750.
If you have recently ventured into a new business or are about to start one, it is imperative to work towards developing a credit score for your business – a one different from your personal score. This is especially important if you are looking for a loan to fuel your business needs without letting your personal spending habits come in the way. Here are a few steps you should start taking towards the path of a decent business credit score.
1. Do Not Mix Business with Self: Sole proprietorships and general partnerships deem the business the same as the owner – which means, your personal credit score is taken into account for all financial matters. Hence, it is essential to incorporate a business and legally separate the business from the owner to let it carve its own identity.
2. Open a Business Bank Account: Open a current business account in the name of the business. Carry out all the business transactions & dealings strictly from that account. If you have received a business credit card, it is best to use it for your business purchases but make sure to pay your EMIs on time. Business credit bureaus will track your monetary transactions and include that information on your business credit report.
3. Establish a Dedicated Business Address and Phone Line: Getting a dedicated business address and phone number will strengthen your business’s claim to separate existence. This history gets imprinted on credit agencies and will help you establish business credit.
4. Borrow from Lenders That Report to the Business Credit Bureaus: While the above steps will make sure you are building a good credit track; it is also important that these acts get recognized in order to be reported to the credit agencies. This can happen only when you deal with the lenders that report your conduct to the business credit bureaus. Ideally, lenders should report to one or more of the four major business credit information companies in India such as CRIF.
5. Borrow Diligently: While you are investing your time in building steady and decent business credit, your motto should be to borrow responsibly. Responsible borrowing habits include drawing from a mix of business credit accounts and paying those accounts on time and in full.
6. Keep a Tab on Your Business Credit Score: Once you start building a business credit history, you should perform a periodic credit check as you do with your personal credit reports. An annual business credit score check at CRIF High Mark should keep you ahead in your game.
In building and maintaining a good business credit score, you’ll realize that you need to flex many of the same muscles you do in maintaining your personal credit scores. Getting there is a slow and steady process which is why it is important to start early. Follow these steps and see your business credit score thrive in no time.