6 Steps to Build Business Credit
The three major business credit bureaus (Experian, Equifax, and Dun & Bradstreet) measure your business credit and this information is shared to your lenders. Business credit represents several financial factors, from your credit history/payments to demographic details like your business’s size to public records such as bankruptcies and liens. Showing how trustworthy your business is financially is how you raise your business credit score, and here are a few ways to do so.
Register Business Information
You should first register your business entity so that business purchases can be recorded to your business credit history.
Whether your business is a corporation or an LLC/LLP, registering your business entity type separates your business and personal credit. Note that a sole proprietorship will still tie business credit to personal credit, which means that business activity will be recorded onto your personal credit report.
You should also set up a business phone number and address. This establishes further separation between business and personal entities and will allow you to register your business in business directories. Credit bureaus collect data from popular directories, so it is best to have your information updated at all times.
Next, you should get an Employer Identification Number (EIN) and a DUNS number. The IRS will freely provide EIN as it is required for business entities, and this will act like a social security number for your business. Your business credit will be tied to this number.
A DUNS (Data Universal Number System) number is similar to an EIN, but it is not required and only opens a credit profile with Dun & Bradstreet. However, as the common option for credit bureaus, this is a good beginning step to building your business credit.
Business Bank Account
Opening a business bank account is another step in separating your business and personal credit. This business checking account should be used for business expenses and paying these expenses back will help build your business credit in an easy and recognizable manner for credit bureaus.
Business Credit Card
A business credit card or business line of credit can be one of the most effective methods to build your business credit. Not only do you have a flexible method of payment, but constantly making purchases and repayments will steadily raise your business credit.
Work With People that Report to Agencies
Some suppliers and vendors, as well as most lenders, will report to business credit agencies. If you pay on time and in full for these companies, then their reports will also contribute to your business credit score. Paying early might even boost your credit score further as some credit bureaus reward early payments. It is best to check your supplier/vendor/lender policies to see if they report to credit bureaus for you.
Keep Track of Business Information
By monitoring your business credit profile with credit bureaus, you can track any possible misinformation that may impact future interactions. Additionally, always make sure that all of your business listings are up to date with correct information as misinformation can negatively affect your credit score.
Since there are three main credit bureaus, each with their own policies and scoring methods, it is best for you to maintain correct information for all three bureaus. You should check your credit rating at least every six months, in case of errors that could massively derail your credit score.
Care for Your Finances
Never overextend what you are capable of paying back. Loans and lines of credit are among the strongest indicators for your credit rating and being unable to pay back can drastically lower your credit score. Making responsible choices in financing should always be your priority to maintain a good credit score.
A business credit score is a crucial element in how your business will operate. The above methods can help build your business credit score, but be patient and never make a reckless financing decision that could have long-lasting ramifications.
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