If you are like any new small Business owner, at some point you may have run into the issue of Business Credit. Business credit can be complicated, but when you build your business credit, you have access to much more funding than if you were to rely on your own personal credit. Here is some information to help you understand all of the ins and outs of business credit.

1. What is a business credit score and why is it important?

Business credit is accrued when you borrow from another business lender using your business information including your business name, business address, and your EIN. A business credit card score is evaluated on a scale of 1-100, and a score of anything above 75 considered high.

It’s important to build your business credit so that you can get funding for your business in your business name, rather than needing to rely on your personal credit. When you have a high Business Credit Score, you don’t have to risk damaging your personal credit to get the money that you need in order to keep your business up and running. Whenever possible, it’s best to build your business credit score, and apply for loans in your business name.

2. How does your personal credit history/score affect your business score?

The only time your personal credit history should affect your business credit is when you first start out your business, and you don’t have any business credit built. If you don’t have any business credit, and/or don’t have any collateral to offer, then lenders will often look to your personal credit in order to determine your credit-worthiness. If you have spent time building your business credit, and have a good business credit score, lenders will look to your business credit score, rather than your personal credit to determine whether or not they will lend you money.

3. How is a business score calculated? What is the formula?

Your business credit score is determined on a scale of 0-100, 100 being the highest possible score. Credit report agencies like Experian, for example, will take a few different things into consideration when calculating your score. They are as follows:

• Credit obligation information from all of your lenders
• Legal information
• Company background information
• Public record information
• Company demographic information
• History of trade payment exchanges

Each of these factors play a role in your business credit score.

4. What are the steps or best practices you can take to build a good business score and how can you improve a score that may be very low?

The best way to build your business credit is to make sure you are taking all of your legal and financial actions in the name of your business, rather than in your personal name. This includes:

• Incorporating your business
• Obtaining an EIN number
• Using your EIN number to open a business bank account
• Establishing your business location and contact information (don’t use your personal information)
• Applying for credit cards in your business name
• Opening a business credit file with creditors (Experian, TransUnion, and Equifax)
• Applying for business credit loans with multiple lenders
• Always paying your bills on time
• Asking lenders to report your good payment practices to creditors

As you follow these steps, you will be well on your way to establishing an excellent business credit score.

5. As an Entrepreneur or small business owner, do you need to need to worry about building your FICO SBSS score?

Understanding all the different types of credit scores can be complicated. A FICO SBSS score is one of the 3 different types of business credit scores. This particular credit score is assigned to small business owners in particular, and is calculated by looking at both your business and personal credit scores.

The reason this score is used for small business owners, rather than large corporations, is because it’s usually what lenders look at when applying for loans up to $1 million. Most small business owners won’t be applying for business loans totaling more than $1 million.

This particular credit score ranges from 0-300, 300 being the highest.

As a small business owner, it’s important to think about building your FICO SBSS score if you are applying for funding that is less than $1 million. Thankfully, the steps to building your FICO SBSS score are identical to the way you would build any business credit or personal credit. To build this credit, just make sure that you are applying for both personal and business credit, and that you work to pay your bills on time every month.

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