Similar to personal credit, your business credit score signifies to lenders, vendors and banks your level of creditworthiness—if you’ll do what you agreed to do and pay on time. It’s important to give your business credit score the same attention to detail you give your personal credit score. Take the time to build it and after it’s established, manage it.
Business credit scores range from 0 to 100 with the main business credit bureaus being Dun & Bradstreet, Equifax and Experian. Here are 6 steps to help you get started with building your business credit.
- Form a Legal Entity
Incorporating your business legally separates your personal life from your business life. It not only provides protection from personal liability, it reinforces that protection. Incorporating your business also makes it easier to sell your business later or go public if you were interested in going into the stock market.
- Get an EIN
Your Employer Identification Number (EIN) is your business’s Social Security Number. It allows you to open bank accounts, apply for loans and credit cards, file your taxes and do business as a business with vendors and suppliers. Applying is easy; it can be done on the IRS website in less than 10 minutes.
- Open a Business Bank Account
After receiving your EIN from the IRS, research and open a small business bank account to manage your business’ money and handle transactions. The bank account has to be opened in the business’s legal name. If it is discovered that business owners have commingled business and personal funds, creditors and banks have the right to make the owners liable for the company’s debts or damages. The separation of funds reinforces your liability protection.
- Open a Business Bank Account
Each reporting agency has its own method and process for establishing business credit. Dun & Bradstreet are the only reporting agency that requires business owners to register their business with them through their website. If you already work with a vendor that reports to the credit bureaus, you may already have a Dun & Bradstreet account. You can check their database on their website. Equifax and Experian are known to frequently check the Secretary of State records on their own for new businesses and have the ability to determine a score based solely on your business’ demographic area.
- Establish Lines-Of-Credit
Tradelines are lines of credits made between businesses and vendors that allow businesses to pay their balance over time or at a later day, generally between 30-60 days. Vendors are not required to report payment history, or any information, to business credit bureaus so be sure to open lines of credit with vendors who report regularly. If you are unsure if the vendor reports, ask.
- Pay OnTime
Seems like a given, but paying on time is incredibly important. Paying early is widely advantageous if you can do so. Be mindful that some business credit cards report your payment history with them, with personal credit bureaus as well (Experian and Equifax are the same companies that handle your personal credit scores) so if you don’t want the information to be reported on both, you have to specially choose a credit card that doesn’t report to both.
Whether looking to build or repair your business’ credit, there are a few things you can do to make sure you stay on top. Ideally, 3-5 lines of credit, including business credit cards, are sufficient for establishing and building credit. Be sure to pay off your existing debt quickly and maintain low utilization levels. Finally, be proactive in watching and monitoring your business credit and fix any mistakes or errors that come up. When it comes to credit, being ahead of the curve is always better than being behind.
For more information on establishing business credit, or opening lines of credit, contact Capital Finance Partners today.
