Learning how to start building or repairing credit for your business are imperative. Whether you are establishing a business or have an existing one, building a good credit rating is essential, as it helps to optimize your business operations.
In the initial stages of building business credit, more often than not, it is necessary to use your personal credit background to obtain funding to finance purchases and attain credit. However, the business credit profile should be separated from your personal one, as relying on one’s own funding to finance the business leaves you personally liable.
The process to build up credit for your business must commence prior to starting operations. To start building credit immediately you must be looking on establishing the following:
Business as a Legal Entity
To separate your business credit score from your personal credit score it is necessary to establish your business as a separate entity. To qualify as a separate entity the business has to be structured as a corporation or a limited liability company (LLC).
Tax Identification Number
Acquiring a tax ID number (also known as an Employer Identification Number, or EIN) is the next step involved in building valuable credit for your business. Similar to the personal credit score which is associated with the individual’s Social Security Number, the business credit reports are associated to a tax ID number. The federal tax identification number can be obtained from the Internal Revenue Service and there are a several ways to reach them:
- Call the IRS Business and Specialty Tax Hotline at 1-800-829-4933.
- Download IRS Form SS-4 from the Internal Revenue Service website
- Download IRS Form SS-4 from the Small Business Administration website and submit to IRS by mail or fax. Directions for the SS-4 forms are provided online.
Business Bank Account
Opening a business bank account allows you to separate business funds from personal funds. Furthermore, a business bank account can also serve as a bank reference when applying for business credit.
How To Start Building CreditWith A Business Credit Card
As a business credit card can be used as a revolving credit line, it is simplest way to build up credit history with on-time payments. Timely payments eventually improve your company’s credit worthiness which facilitates your ability to acquire a business loan. Therefore, use a business credit card for payments whenever possible. Unlike personal credit cards, having multiple active business accounts can be positive, provided that they are in good standing. However, limit the number of business credit cards when beginning and as the company grows you can continue to acquire more.
Business Phone Number
Acquiring a business phone line is important as business credit reporting agencies use the phone number to index your business in their databases. In addition, the credit reporting agencies use the telephone number as proof that you are actually conducting business.
Be sure to supply the exact same business address and phone number to every credit agency and trade credit vendor. Ensure that the business address and phone number are also listed in both the 411 Directory (White Pages) and the Yellow Pages.
A D-U-N-S Number
The D-U-N-S Number is a 9-digit number issued by Dun and Bradstreet that most companies utilize it to verify the credit history of businesses. The United States government and many corporations require their suppliers and contractors to have a D-U-N-S Number. Keep in mind that having a D-U-N-S number is just the beginning. You will need to start building your company’s credit profile by doing business with creditors and/or suppliers that report to Dun and Bradstreet.
How to Start Building Credit By Registering with Credit Reporting Agencies
Many of your company’s lenders and suppliers report information to the business credit reporting agencies about your company, such as how your business pays its bills or loans. There are many business credit reporting agencies such as D&B, Experian Business, BusinessCreditUSA, FDInsight, and ClientChecker. The majority of suppliers, creditors, and lenders pull their reports from Dun and Bradstreet, Experian and, Equifax Business. Registering an account with these 3 business credit reporting agencies is a good start.
Registering enables your company to start building credit through their credit databases. The database can also be used by potential customers, suppliers and lenders to obtain fundamental information about your company. As it is not mandatory, it may be necessary to ask businesses that you work with to report your timely payments to these business reporting agencies. These submissions enhance your credit rating and verify your registration with the business credit reporting agencies.
Before conducting business, it is necessary to obtain all registrations, permits and business licenses that are required in your jurisdiction.
In summary, once the above list has been completed, the process of building business credit profile can commence. Obtaining trade credit with vendors is a good place to start. To build up credit score, it is important to seek vendors and suppliers that are set-up to report your company’s payment history to the credit reporting agencies. Naturally prompt payments for purchases are essential in leading to a good credit score. If the business has an existing loan, timely payment of the loan can also help you establish a better business credit score.
As it is with the individual credit scores, it is important to review your business credit scores from credit bureaus once or twice a year. Make sure the information is accurate. Upon finding errors, contact the appropriate bureau and report the errors immediately with proper documentation. As the business credit report affects the operations of the business, it is to your best interests to have these agencies present an accurate picture of your business.