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Responsible credit card use for your business
To succeed as a company, it is imperative that you make sure your businesses reputation with creditors is as strong as it is with customers and vendors.
Effectively managing your business credit reputation is just as important as managing your personal credit reputation, but there are different steps to take and policies to consider when dealing with business credit. Unfortunately for many, managing business credit cards, and in turn, business credit ratings, often gets pushed to the back of the line. Too many small businesses fall into debt due to poor credit management strategies. To succeed as a company, it is imperative that you make sure your business is as reputable to creditors as it is to customers and vendors.
While there are different views as to whether or not you need to completely separate business and personal expenses, experts agree that you will need to use your personal credit history to initially obtain the business financing. Using a business credit card solely for business expenses may help you better track and manage business purchases, and stay organized for tax planning purposes. So you really should only use a business credit card for business expenses and not personal expenses. There should be no co-mingling when using a business credit card.
It is easy to check your credit rating and obtain your personal credit score via the major bureaus (TransUnion, Equifax, and Experian). It is also important to obtain your businesses credit report and rating, for example, from Dun & Bradstreet, but you need to understand that your business rating is calculated differently. These tips can help:
Your business score is based primarily on the timeliness of payments.
Unlike personal credit, having multiple active business credit accounts can be a positive as long as you keep them in good standing. It demonstrates that your business is savvy about managing its finances.
You can self-report information for your business profile letting you establish a profile with the different credit bureaus.
Business creditors are not required to report payments to the bureaus, so to build a good rating you should ask vendors to report your payment performance.
So before you even apply for a business credit card, there are a few major things you should focus on. First, make sure that your personal credit history and record is as strong as it can be. Second, understand your business’s financials and make sure they align with your tax returns and bank balance records. Third, determine how much credit you actually need by analyzing your business plan and projecting your monthly cash flow. Applying for too much can actually affect your credit rating negatively, but applying for too little can affect your business’s ability to grow. Lastly, focus on building credit through vendors and suppliers to improve your credit rating for your business.