How Long Does It Take To Build Credit – Just as people need good consumer credit to get a loan, companies also need to build a strong business credit history to be successful in business. This article discusses how it takes about two to three years to build good business credit and what you need to do to get there.
If you are just starting out, your loan will be based on your personal credit and history.[1] Generally, it takes two to three years to build business credit before you can be considered for a business start-up loan.[2] However, there are ways you can build business credit quickly (or at least faster). For more information, see the article below
How Long Does It Take To Build Credit
You may wonder why entrepreneurs don’t just use personal credit to get a small business loan. In fact, most do: 46% of small businesses use personal credit cards.[3] But if you want to protect your assets and credit, it’s important to keep your personal and business finances separate.[4]
What Is A Good Credit Score?
Building business credit can protect your personal assets from legal liability. It can also allow you to take advantage of tax benefits, help track your business finances, and simplify your accounting.[5] Business credit cards also typically have higher credit limits than personal cards, giving you more financial resources as you invest and expand your business.[6]
Building business credibility is a process: By following these five steps, you can set your business up for success.
When starting your business as a legal entity, it is important to choose a structure that is right for you: Limited Liability Company (LLC), Limited Liability Partnership (LLP) or Corporation. (There is no distinction between individuals and sole proprietors.) [7] Then apply for a Business Identification Number or EIN. This is a nine-digit number used by the IRS for tax purposes.[8]
Once you have your EIN, you can use it to open a business bank account. This will help separate your business finances from your personal account. (You can also use your EIN to apply for licenses and permits, as well as apply for a loan.)
Quicker Ways To Start Building Credit
A D-U-N-S number is another nine-digit business identifier created by the business credit reporting company Dun & Bradstreet. This Dun & Bradstreet business credit file identifies your company, which lenders can access when applying for a business loan or line of credit. Your D&B file will also include basic information about your company, such as your address and phone number, along with any branches or subsidiaries you have.[9]
(Note: Equifax and Experian, which collect personal credit reports, are also business credit reporting agencies. Fair Isaac Corporation, or FICO®, provides small business scoring services in addition to collecting personal credit scores.)[10]
Establishing a physical listing increases your company’s credibility with both customers and potential credit issuers. Adding contact information—such as phone number, email address, and website—allows them to learn more about you and contact you if needed. Your business website and email address should be separate from your personal contact information.
A business credit card can help you build credit and provide important fraud protection, among other things. There are different types of business credit cards for different types of businesses. To apply for one, you must provide the following[11]:
How To Build Credit In 7+ Ways
Once you’ve established business credit, it’s important to build on it to improve your business credit profile and secure lower interest rates. Here are a few ways you can do this:
Whether you are a new business owner or an established company trying to improve your credit, you may have questions about how to build credit. Here are some frequently asked questions and answers that may help you.
The criteria used for business credit scores are different than the criteria used for personal credit scores. Agencies use different formulas, with scores typically ranging from 0 to 100 (like the Dun & Bradstreet Paydex score) and FICO ranging from 0 to 300.[12] On the Experian scale, a score of 76 to 100 indicates that a business is a low-risk borrower.[13]
To build credit, you must open accounts that report to the credit reporting agencies. It’s a good idea to set up at least two or three accounts (or lines of business) with reporting companies. These can include business loans, checking accounts and business credit cards.
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Different credit scoring models emphasize different factors when compiling a score. Some things that are likely to be considered are: your payment history, credit utilization, and how long you have had accounts.[14]
Experian considers factors such as past balances and payment habits, as well as public records (including loans, bankruptcies and judgments) and company background information from independent sources.[15]
As mentioned earlier, the scoring system for business credit is different from personal credit, although some of the same factors are considered. Additionally, the information on your business credit report stays for different lengths of time than your personal credit report. A payment process of more than 12 months is considered as one of the factors.[16]
Business credit cards are available to most business owners with good credit. This includes sole proprietorships, LLCs, corporations, and small or large business owners.[17]
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Building business credit is an important priority for small business owners. Whether you need to buy office supplies, pay for inventory or shipping, rent space, or hire employees, you can improve your business credit the same way you build personal credit: consistently pay on time and keep your debt low. If you do this, your business will be successful in the future.
Ana Gonzalez-Ribeiro, MBA, AFC® is a Certified Financial Advisor® and a bilingual personal finance author and trainer dedicated to helping people in need of financial education and advice. His informative articles have appeared in numerous media outlets and news sites, including the Huffington Post, Fidelity, Fox Business News, MSN, and Yahoo Finance. He also founded the personal finance and motivation website www.AcetheJourney.com and translated Spanish financial advice for Blue Collar America by Kathryn B. Haver, CFP. Ana teaches personal finance classes in Spanish or English on behalf of the W!SE (Educational Support Work) program and has taught workshops for nonprofit organizations in New York.
Our goal is to provide our readers with current and unbiased information on credit, financial health and related topics. This content is based on research and other relevant articles from reliable sources. All content is written by contributors with experience in the financial industry and reviewed by a reputable person or persons.
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Are you asking “How long does it take to build credit?” Review these simple steps today and learn what you can do to build credit, as well as what to avoid or reduce.
It’s impossible to build good credit from nothing, and “starting from scratch” is a place we’ve all been at one point or another. Building good credit is achievable when it takes time and commitment. Ready to get started? Let’s go!
What Is A Credit Score? What Are Credit Score Ranges?
Let’s be honest up front: building good credit is hard work, and achieving and maintaining a good credit rating requires considerable and sustained effort. Adopting a few good financial habits will get you started and going. Keep at it and you’ll soon find yourself enjoying the benefits of a credit improvement.
Let’s start with some key information, meet the players and understand how your score is calculated. From there, we will discover ways to implement knowledge. Soon, we will have an answer to the question, “How much does the loan take?”
Often, with the question of “how long does it take to build credit,” there is a sense of mystery surrounding credit scores and how to get a better one. Let’s start with some basic information about how it all works, so we can get a better understanding of what to do best (and what to avoid!). We cover FICO and VantageScore, two models used to derive your credit score.
Your credit score is a number used to identify your relative risk level to potential lenders. A higher number (FICO considers 800+ to be “exceptional”) means you’re at better risk.
How To Build Credit Fast
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