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There are a lot of different ways to build your business credit portfolio. Here’s how you can do it in just 7 steps.
Business credit helps indicate your business’s creditworthiness, which lenders and creditors use to determine your risk as a potential borrower. Scores typically range from 0 to 100 and are measured by the major business credit bureaus—Dun & Bradstreet, Equifax, and Experian. A good score can be the ticket to favorable terms on a business loan, a business credit card, or with a vendor. To build business credit, here are seven steps you should follow:
1. Formally establish your company
It takes two steps to formalize your company. To begin, create a corporate structure for your organization, such as a limited liability company (LLC) or a corporation. Second, contact the IRS to get an employer identification number (EIN).
Determine the Company’s Structure
You legally separate your company and personal credit profiles when you incorporate or create an LLC. This gives some protection against personal accountability for the corporation’s activities. Other benefits of establishing your company include:
- Small business owners are shielded from personal accountability for financial commitments owed to the firm.
- Corporations are the greatest option for firms that intend to go public in the future.
- Corporations have the ability to raise funds for investment.
- Corporations are not reliant on the life of a single person and may exist perpetually.
- There are more options for tax advantages to be created.
Whether you want to stay small, seek investor financing, scale-up, or have more owners and issue shares, the optimum corporate structure for your firm depends on your goals.
Obtain an EIN number.
Company credit agencies utilize an EIN for business credit reports, much as personal credit bureaus use your Social Security number for personal credit reports. The EIN is basically a company’s Social Security number. To apply for business financing, establish your company, create a business bank account, work with vendors or suppliers, and pay business taxes, you’ll need an EIN.
In approximately 10 minutes, you may apply for an EIN online. You may utilize your EIN for most business activities as soon as you acquire it. However, using your EIN to submit taxes online will take roughly two weeks.
2. Open a bank account for your business.
For financial activities, every firm needs a small business checking account. If you want to keep the liability protections given by LLCs, you’ll need to open a business bank account under your company’s legal name. If a business owner’s personal and corporate funds are mixed, a creditor has the authority to hold the business owner accountable for all company debts and damages.
While many checking accounts are comparable, some banks don’t impose monthly account fees or make it simple to avoid them by maintaining a low minimum balance. Traditional bank costs may be avoided with these free business checking accounts, allowing you to retain more money in your firm.
3. Obtain a DUNS (Domain Unique Numbering System)
Dun & Bradstreet (D&B) offers a business credit score that’s used by many lenders. D&B collects public business and industry information, payment history, and financial performance information to generate three individual business credit scores. To gain access to these scores, you must first get a data universal numbering system (DUNS) number.
The DUNS number is a unique nine-digit identification number that is connected with your company credit file in the same way that your Social Security number is tied with your personal credit reports. A DUNS number is also required if you want to work for the federal government on a contract.
You can apply for a DUNS number for free on D&B’s website or through a credit platform like Nav. DUNS will ask for the following information:
- The organization’s name
- Address
- Owner’s or CEO’s name
- The organization’s legal structure
- The year the organization was founded
- Total number of workers (full-time and part-time)
Establishing business credit with D&B requires the DUNS number plus at least three trade references. Trade references, similar to employment references when you apply for a job, come from suppliers and creditors that whom you’ve done business with. You can get trade references by asking vendors you have a positive relationship with to report your payment activity to D&B.
It’s also possible that you already have a DUNS number if a vendor or supplier previously reported information to D&B. You can check to see if you already have a DUNS number by visiting the D&B website and searching for your company.
Equifax & Experian
In addition to D&B, Experian and Equifax monitor business credit. You don’t need to create an account or get trade references with Equifax or Experian. These bureaus look automatically at the secretary of state records for new business filings and other public records. They can score your business solely based on the demographic information in such records. Equifax also offers the ability for business owners to self-report company information, which can help keep your credit information up to date.
4. Get a credit card for your business.
Obtaining a small company credit card and paying the debt in full each month is an excellent method to establish a positive payment history, which is one strategy to improve your business credit. Many credit cards provide cashback and reward points. You may be eligible for some of the top business credit cards if you have an excellent personal credit score of at least 670. Many credit cards will look just at your personal credit or financials if you don’t have any company credit history.
5. Establish a Line of Credit With Vendors & Lenders
While your company credit report may include a variety of information, tradelines are one of the most significant aspects of your credit history. A business trade line is a credit line established between a company and a vendor that permits your company to settle its amount at a later period. Business lines of credit are available from both traditional and internet lenders and may be utilized for working capital and cash flow. These methods may assist a company owner in obtaining a business line of credit.
Open a line of credit with suppliers and lenders that report to the business credit agencies if you want to improve your business credit. You should have three to five credit lines with payment reporting capabilities. Whether you have a good payment history, you should question your present suppliers and creditors if they report to the business credit bureaus. They aren’t compelled to. If they don’t, ask if they may begin reporting right now. Many suppliers would accept since reporting to the credit agencies is free.
6. Always pay your bills on time
It’s critical to return all of your creditors on schedule if you want to create company credit. When business credit agencies determine your company’s credit score, the most essential consideration is your payment history with suppliers, lenders, and credit issuers. Late payments have a substantial negative influence on your corporate credit score, just as they do on your personal credit score. A poor credit score is also the most common cause of credit refusal. Consider obtaining a secured business credit card to help you recover your credit if your credit has been affected.
7. Keep an eye on your credit reports.
Misreported payment information on your company credit report, for example, might affect your business credit. Reconcile your company bank and credit card accounts with your trade lines as a matter of thumb, since here is where firms often uncover problems or fraud on their accounts.
Getting a basic business credit report is free. These reports typically show monthly summaries of credit reports. Paid services will offer a more complete picture of your business credit; however, they may not be necessary if you’re merely checking to make sure your credit information is accurate. You can obtain your business credit reports and scores from D&B, Experian, and Equifax for free using Nav.
Each business credit reporting agency has its own procedures for errors on a business credit report. You can submit disputes electronically to D&B and Experian. To dispute items on an Equifax report, log into your account and contact customer service. With the right documentation, it usually takes about one month to fix an error on your business credit report.
SBSS FICO LiquidCredit
The SBSS FICO LiquidCredit is a mix of your personal and business credit score. FICO is unique because it isn’t technically one of the three major credit bureaus, but it still provides its own unique score.
FICO provides a business credit score based on information already collected by Dun & Bradstreet, Experian, and Equifax. Therefore, there’s nothing you need to do besides having your credit information looked at by the three main bureaus. All business owners need to focus on this score because it’s most commonly used when approving Small Business Administration (SBA) loans.
Conclusion
Establishing and keeping strong business credit gives several advantages as your company evolves and flourishes, such as low-interest business financing and attractive payment terms from suppliers. You may establish a great company credit score and position yourself for success by following the procedures indicated above.
