The core difference between business credit and personal credit is that business credit is tied to your EIN (employer identification number). As you proceed through various financial activities within the boundaries of your business, like the processes of opening a business bank account, getting a business credit card, and paying suppliers is crucial.
As your business operates, these accounts and activities provide information that becomes part of your credit history. Most credit related activities of a business are reported to credit bureaus that deal specifically with businesses.
Here’s the list of 9 ways to build business credit fast, along with explanations further explaining each in this very helpful article.
1) Register your business as a corporation or LLC.
2) Get an employer identification number (EIN).
3) Open a business banking account.
4) Establish a business address and get a phone number.
5) Apply for and get a business DUNS number.
6) Open trade lines with your suppliers and/or service providers.
7) Get a business credit card and/or business line of credit.
8) Borrow from lenders who report to business credit bureaus.
9) Keep business information current with the bureaus and pay all of your business’s bills and loans back on time.
Some of these principles of how to build business credit are simple and common sense, but lets elaborate on a few of them that are somewhat unclear. This way you can be sure and get started building your business credit in the right direction and as soon as possible.
Register and Establish a Business Identity Separate From Your Personal Identity
Credit bureaus must know your company exists so they can track it. If a business purchases supplies or software for the company under a personal name, those purchases didn’t build a business credit history.
There are things you can do to alert credit bureaus of your existence so they can start tracking your financial history and begin building your ever important business credit.
Set Up a Corporation or LLC
If you run your business as a sole proprietorship, then your business credit is tied to your personal credit. On the other hand, creating a separate business entity clarifies that your personal and business credit and finances are separate. Specifically, the credit bureau Dun & Bradstreet recommends incorporating or setting up an LLC.
Get an Employer Identification Number / EIN
An EIN (employer identification number) is basically a Social Security Number for your business. It’s free to get one from the IRS, and you’re required to have one if you have employees or if you’re taxed as a C corporation or LLC.
Apply For a Business DUNS Number
Register the business with Dun and Bradstreet, which is the biggest business credit bureau in the United states. They offer both free and paid options. By registering with Dunn and Bradstreet, you will be able to obtain a DUNS number.
A DUNS number is another identifier used to track businesses. It’s monitored by Dun & Bradstreet, and it’s free to apply for one online.
Get a Business Phone Number and Address
A dedicated phone number listed in your company’s name offers extra credibility. You’ll also use it to sign up for a DUNS number and other accounts in your company name, which go towards securing your business credit.
It doesn’t necessarily need to be an 800 number. You can get a local free phone number through Google Voice. You will need to verify the number with an active phone so if you only have one cell phone then you can only get one Google Voice number. That should be fine if you are starting your first business.
A business address can be as simple as using a UPS Store box. A better way is of course to have an actual office or center where you have an actual office.
Some people use temporary office space like that available from Regis. If you want to send out emails using a service like Aweber or Active Campaign, they will need to mail you a confirmation of address to use their services. Every email sent must comply with CANSPAM laws, and your business address must be at the bottom of every email sent.
Open a Business Checking Account
Many first time business owners feel they can get by using bank alternatives like PayPal and Stripe. Or worse, some business owners commingle all their business funds in their personal bank accounts. The problem is that these transactions don’t go toward establishing your business credit with reporting agencies that build your credit.
To fix this problem, simply sign up for an official bank account using the name of your business. You can still use services like PayPal and Stripe, but connect them to your business bank account. This way you’ll have an official record that credit bureaus will be able to track easily.
Get a Business Credit Card
A credit card is the easiest form of business credit to get. It will also help you establish a record of repayment, which will build your business credit score. So basically, you can sign up for a credit card in your company’s name and start making purchases and payments right away. This enables proving to creditors that your business has the ability to repay debts.
Make sure you sign up with a credit card company that reports to the main business credit agencies. Citi and Chase are two that do, but you can research your card of choice to make sure. Once you begin using your business credit card, you must pay your bills on time or early to avoid late fees and hits to your credit score.
Use Vendors that Report to Agencies
Working with vendors that supply equipment or inventory to your business can also help you establish a strong history of paying your bills and honoring agreements with partners. This is yet another way you can build your business credit. However, make sure you choose vendors that actually report to credit bureaus.
Some of these include Crown Office Supplies, Quill, Creative Analytics, Grainger, Uline and Summa Office Supplies.
How To Build Business Credit Without Using Personal Credit
By building business credit without using personal credit, you are not using a personal guarantee or consumer credit check. These are parts of personal credit.
We’ve already covered what’s involved in building a healthy business credit profile, but lets take another angle at looking into how to do this without using personal credit or a personal guarantee.
First, form a legal business entity like a corp or an LLC. This is the very first step in building business credit, because it separates you from your business. Then apply for a tax ID or an EIN and then open a business bank account.
Next, register the business with Dun and Bradstreet, which is the biggest business credit bureau in the United states. They offer both free and paid options. You can decide what’s best by visiting DNB.com. And once registered, they will issue the business a PayDex score, which is their new “business” credit score.
Unlike your personal credit score, it’s on a scale from 1 to 100. Paydex scores are much like consumers’ FICO scores, but there are some key differences.
Instead of displaying your personal credit history, your paydex score determines your business’s creditworthiness. It more specifically reflects how promptly your business pays its creditors and suppliers, which is a big part of the performance of your payment history.
Lenders will look at a business’s Paydex scores to determine the risks of lending to that business. That Paydex score will show how reliably a business meets their debt agreements.
One tip if you are starting from scratch and want to build a solid Paydex score is to get vendors first thing, and make sure they are vendors that report to Dun and Bradstreet. There are a bunch that will offer you credit without a personal credit check, as you’ve seen in this article.
Again, here are a few. Try applying with Quill Office Supplies for all your office needs. Paper, ink, pens and thousands of other items are available at Quill, and they will approve without a personal credit check and they report to Dunn and Bradstreet. Staples and Office Depot also generally offer net 30 accounts and they also report to Dun and Bradstreet.
If you need shipping supplies, try Uline. They also report to Dun and Bradstreet and will often give new businesses a line of credit, even if you’re a brand new business with no existing business credit.
For tools, try Grainger Outdoors.
Also, Wells Fargo offers a secured business credit card that reports to Dun and Bradstreet.
Even Amazon has a net 30 account available for new businesses to start building their Paydex score.
Remember that when opening business accounts, make sure you don’t attach them to your personal credit.
How To Build Business Credit With Bad Personal Credit
There is more than one type of business credit report.
The types of business credit reports include Dun & Bradstreet®, Experian® Business and Equifax® Business. These all create their own business credit reports. Some lenders and vendors may also turn to specialty business credit reports provided by other companies when evaluating your business.
Let’s discuss more about the following factors that will allow you to build business credit if you have bad personal credit. These are similar to the previous discussion of how to build business credit without using personal credit.
Establish Trade Lines.
While a lot of information can wind up on your business credit reports, trade lines can be very important.
Trade lines are lines of credit established between a business and a vendor. They can be things such as an account with an office supply company where the company allows the business to pay the account balance several days or weeks after receiving the inventory or services.
Vendors may report this account to any reporting agency, although they’re not required to do so. Depending on the type of credit report, a trade line that’s reported can include information like your available credit limit, the amount owed, the terms of the account, recent activity and when you pay based on your due date.
There is a scenario where you could have a business credit report with no trade lines. By doing this, it may be hard to build business credit with no business trade lines. This is because your number of trade lines and your payment history may be factors in your business credit file.
Here’s something to keep in mind. As we outlined earlier in this article, not every vendor will report your payment activity. This means that even if you always pay your vendors early or on time, you may not be building your business credit.
Always remember if you’re trying to boost your business credit, you may want to start opening business trade lines or accounts immediately. These are accounts such as a business credit card and trade lines with companies who report to the business credit reporting bureaus. We mentioned several earlier for your reference.
Just be careful about opening an account with an annual fee, as you don’t want to have an extra expense just to keep an account open. You may also be able to find more cost-effective options than a fee based credit card.
You may also consider opening term accounts with suppliers who will report your activity to at least one bureau. We discussed companies that will report for your business earlier. You can ask the vendor if and who they’ll report your payments to before opening an account. This way you will be certain to ensure it’ll help your credit.
How To Check Your Business Credit Score
While it’s easy to get a free look at your personal credit score using a variety of platforms, the same cannot be said about business credit scores. Sometimes, you’ll have to pay to see a business credit score for your own business other businesses.
Here are some details on how to check your business credit score with each of the credit reporting agencies that determine business credit scores.
Dun & Bradstreet
Consider signing up for Dun & Bradstreet Credit Signal. This service allows you to monitor your Dun & Bradstreet business credit score for changes over time. This free program lets you track when your business profile is being accessed, and you get the chance to view four Dun & Bradstreet business credit scores and ratings for a 14-day period.
Equifax lets you order a single business credit report for $99.95. However, you can also order a package of reports for five businesses for $399.95. If you know other businesses who would like to see their reports, this package of reports could be used and the cost split between your business and the others. You can explore these options on the Equifax website.
Experian Intelliscore Plus
Experian also lets you check your business credit score and business credit report. How much you’ll pay depends on the plan you select. You can see your business credit report for as little as $39.95, but you can pay for an annual plan that lets you monitor your business credit reports and score for $189 per year. The Experian website offers more details on how to get started.
Learning how to build your business credit is a precious skill set to know. Many people understand parts and pieces of the total formula but never carefully put all the parts together to work as one synergistic system. This can become an enormous opportunity cost over time for a business enterprise.
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