As a business owner, you have the opportunity to put loans and credit cards in your business’s name. In order to do that though, you need to have some form of business credit for the banks to look at. One of the easiest ways to build credit for your company is with a business credit card. While the idea of using credit to build credit may seem a little farfetched, the process is actually fairly simple. Let’s take a look at how to build business credit with credit cards so you can prepare for your future. Resources: IRS, nv gov, utah.gov, ftb.ca.gov
What’s the Purpose of Business Credit?
Much like personal credit, business credit can be used to apply for loans, credit cards, leasing agreements, and more, all in the business’s name. Even if you are a sole proprietor with no employees, there may come a day when you want to get a loan for a storefront or buy a vehicle for your company. Rather than trying to do these things with your personal credit, you can use your business credit to secure the loan and establish assets under your company name.
How Business Credit Cards Help Build Business Credit
Once again, business credit cards have the same impact on business credit that personal credit cards have on personal credit. The more you use and pay off your card, the better your credit history and credit score are. As long as you make your payments on time and maintain a fairly low balance on your cards from month to month (under 35%), you can build up your credit score just by using your business credit card for your purchases.
Keep in mind that not making payments on your business credit card will have a negative impact on your credit. This is especially unwise for people with little to no business credit because it shows lenders you cannot be trusted to repay your debts. The goal here is to use your credit card as a tool for boosting your score, not a weight that drags you into debt.
Using a Credit Card to Boost Your Business Credit Score
Apply for a business credit card using your Employer Identification Number from the IRS. This links the line of credit to your business, not you personally. You may still have to sign off as the guarantor for the card, but the credit built from the card will apply toward your business, not you.
Once you have a business credit card, start using it to pay for business expenses. This can include lunch meetings with clients, utility bills for your office, printing supplies, marketing materials, and anything else you would report as an expense on your taxes. Pay for items that you already have the money for in the bank or will have the money for in a short period of time. Then you can pay off your credit card bill within a week and not have to worry about going into debt.
Keep up this constant repayment method, and you will soon be able to apply for even more lines of credit thanks to your developing business credit score.