Every business owner has a unique opportunity to establish, maintain and have access to credit both at an individual and business level. If you are planning on building and growing a company this is no doubt good news since it means that you don’t have to be solely dependent on your personal credit to bail you out. It is now time for you to work hard on building your small business credit report.

Less than 10% of all business owners don’t know or at times don’t fully understand how to establish business credit. Worse still fewer know how to track their small business credit report and understand fully how it affects their businesses and lives.

Small Business Credit Report vs. Personal Credit Report

Right from the moment an individual having a social security number applies for their first credit card or accepts their first job a credit report is established for that particular person with one of the three personal credit report bureaus. Every single time the individual’s profile changes with information regarding:

• Change of Address
• Credit Application
• Credit Inquiry
• Job Change

It is reflected on the personal credit report. Such information is normally relayed to credit bureaus by the lending institutions. With time the credit report becomes a statement that is indicative of an individual’s ability to pay back debt.

In some instances, this is the case with businesses. When one business lends business money it is known as trade credit. Business or trade credit is the single biggest source of credit in the world.

Information regarding trade credit transactions is collected by commercial credit reporting agencies as a basis of forming your small business credit report using your business name, Federal Tax Identification Number also known as an Employer Identification Number and your address. Business credit agencies, use this information to come up with a small business credit report on all of your company’s credit transaction.

The major commercial credit bureau agencies that issue a small business credit report are:

• Experian Business
• Dun & Bradstreet
• Equifax Business
• Business Credit USA

One of the major drawbacks of this system, is the fact that no business is under obligation to send in details pertaining to their credit transactions. As a matter of fact, it is possible to rack up your business’ credit without anyone ever getting to know about it. This means that the small business credit report is not a strong testament of how well your company pays back debt.

How To Establish A Score For Your Small Business Credit Report

The first thing that you need to know about business credit score is the fact that it based on a scale of 0 to 100. A score of 75 or above is considered as excellent and creditors generally will not give you a hard time when extending you credit. On the other hand personal credit scores range between 300 and 830 with 680 considered as excellent.

There many factors that determine your credit rating on your small business credit report and not all of them have to do with when you pay your bills. Some of these factors are:

• The lifespan of your credit profile
• The amount of credit you have on already existing lines of credit and credit cards.
• The frequency of inquiries made on your credit profile.

These however, are just a few of them.

The greatest mistake that most entrepreneurs make is using their personal information to apply for lines of credits for their businesses. This results in a lower credit score.

This is because for instance, on average the consumer credit report gets a single inquiry every single year and has about 11 obligations. These obligations are normally made up of 4 loan installments and the rest is made up of credit cards.

Since business owners have both their personal and small business credit report profiles, there is a double increase in the number of inquiries that are made. These of course have a negative impact on their credit score. When business owners don’t separate their credit information, this only goes to worsen their small business credit report which in turn affects the chances of receiving credit.

In addition, by using your personal credit report to get business credit, you will not be able to establish a strong business credit score and thus have a weak small business credit report, which will only make it more difficult to get business credit in future.

By finding companies that will establish your business credit and that are willing to report your payment patterns to business credit agencies, you’ll be able to establish a strong small business credit report score and profile.