When credit comes to mind, you usually think of your own personal credit score. Of course these are important – and necessary for buying a house or financing a car. But most people don’t realise that businesses also have their own credit profiles. Companies have their own financial histories, or reputations, which play a role in acquiring capital if they need to.
There usually does come a time when a business needs to either borrow money or rely on credit. And when that time comes, the first thing that banks and lenders will look at is the company’s credit profile.
So a relevant question that new business owners often ask is, will a business account help with building a strong credit profile? And if they do, which type of accounts really matter?
Business bank accounts to consider include:
What Is A Business Credit Profile?
In a nutshell, your business credit profile is what your company’s financial reputation looks like from the point of view of banks and investors. It will give them a pretty good idea of how you manage your debt and day-to-day finances.
Depending on which country you’re in, the credit profile will either be linked to your Employer Identification Number or your company registration number.
Typically, your credit profile will include information like how long your business has been operating, your industry, how often you’ve applied for credit and if you pay suppliers on time.
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Do Business Accounts Actually Build Credit?
Before we get to that, it’s important to understand the different types of business accounts. These include business checking accounts, business credit cards, business loans and utility accounts in your company’s name.
These accounts are not the same and therefore, they will have different impacts on your credit profile. Let’s take a closer look at each one.
Business Checking Accounts
These are often the first type of accounts that a new entrepreneur will open. Since they don’t usually report to credit bureaus, they won’t directly contribute towards building your credit profile.
With that said, they are still important for credibility for a couple of reasons. They prove that your business is separate from you and your personal account and it’s easier to keep track of expenses for tax season.
Moreover, they help you build a relationship with the bank which can lay the foundation for a loan in the future.
Business Credit Cards
Having a business credit card is one of the quickest ways to build credit. Since most issuers have to report to credit bureaus, your payment history will be made available on your profile.
This type of account will help with establishing a history of using credit responsibly and show that you make your payments on time. However, if you pay late or max out a card, your credit profile will be affected very quickly.
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Business Loans
If you need to borrow money in your company’s name, that gets reported straight to business credit bureaus.
And when you pay back the loan on time, it shows that you are reliable which improves your credit profile. In fact, this is one of the strongest ways to grow your profile especially if you know that you have plans to scale in the future and will need capital to do that.
Utility Or Service Accounts
Utilities are anything that you use for your business such as electricity and Wi-Fi. Occasionally, these will show up in business credit files.
However, they don’t really contribute to building your profile. If you miss a payment on them, your score will be affected so while they don’t contribute to your profile, you still need to stay on top of them to avoid a bad credit record.
Why Should You Make The Effort To Build Business Credit?
At this point, you may be wondering why you should even bother with building business credit. After all, you could just use personal credit, right? You could but building business credit is beneficial.
Separates your finances: When you have a business account, your personal and company finances are kept apart – which they should be from the start. If anything happens on the business side, your personal credit score won’t be affected.
Better financing options: Companies who have strong credit are more likely to get approved for bigger loans and higher credit limits with lower interest rates.
Attracts investors: If you have a solid credit profile, investors and partners will see you as reliable. Therefore, they will be more open to getting involved with your business.
Supports long-term growth: Naturally, your business will expand as time goes on. But you’ll need capital to grow. Having a strong credit will ensure that you can access the funds when you need to so that you can support your growth.
