Establishing business credit is one of the most important steps a small business owner can take when first starting out. But there can be some confusion on the right way to do it.
One of the first things a business owner must do is get a federal Employer Identification Number. In simple terms, when it comes to credit an EIN is used similarly to the way individuals use their Social Security Number. EINs are free from the IRS. You can get them in many different ways, including online.
It’s important to keep business credit and personal credit separate. If the two are intermingled it can cause legal issues in the future. If your business gets into legal trouble you’ll want to keep your personal assets unharmed. And on the flip side, if one of the company’s owners finds themselves in personal financial trouble you’ll want to make sure the company’s assets are safe. So make sure to open bank accounts and credit cards using your company’s legal name (and your new EIN number!)
If you find your company’s credit card or cards aren’t sufficient for your needs, consider getting a line of credit from a bank. A line of credit can remain unused, typically without fees until you tap into it. If an LOC from a bank is more than you need, you can also see about establishing LOCs with your vendors. Credit experts recommend having different types of credit to boost your credit score. allbusiness.com writes it’s better to ” ‘have a “credit mix,’ meaning different types of credit (such as a term loan, invoice accounts, LOCs, and credit cards). Having three credit cards with similar terms isn’t as impressive to credit bureaus as your ability to juggle different types of credit responsibly.”
Of course, missing payments can have a devastating effect on your hard-earned good credit. Having a bookkeeper can help make sure that seemingly small details don’t cause a big mess. If you’d like to talk about outsourcing your bookkeeping, reach out to us here at Versatel solutions. We can take care of your bookkeeping and administrative needs.