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Smart Steps to Building Credit for Your New Business

Tips to help you build good business credit.

Having a good business credit score comes with many of the same perks as having strong personal credit. It’s easier to secure lower-interest loans with better terms, and vendors will be more eager to work with you. Some lenders and vendors require separate business credit in order to do business at all. Separating your business and personal credit will help protect your personal assets in case anything goes wrong with the business, or vice-versa.

Here are some smart steps you should take to build your business credit score.

Separate Owner and Business

Many businesses operate as a sole proprietorship or a general partnership. In these setups, the owner is legally the same entity as the business. If the owner’s personal credit score goes down, so does the business’s credit score. The best thing you can do for building business credit is to separate your personal identity from the business.

Establishing an LLC or becoming incorporated will legally separate you and your business into two separate entities. That way, if your business has a slow couple of months or, worse, goes under, you will be protected. It works the same in the other direction. If you decide to buy a house and your personal credit dips from the increase in payments, your business credit will be unaffected.

The more unique an identity that you give to your business, the stronger its presence in the eyes of credit bureaus. Even something as simple as getting a business phone number will go a long way in establishing the separation between business and owner.

Get a Federal EIN

Applying for a federal employer identification number (EIN) is a free and easy way to begin establishing business credit. An EIN is essentially your business’s social security number. It is a unique identifier the IRS uses to track business credit. Some vendors even require an employer ID number in order to do business.

Obtaining an EIN is the first step to incorporating your business or forming an LLC. It’s also used when opening business bank accounts, credit cards and for filing taxes.

Open a Business Bank Account

The next step to building credit is opening a business bank account. Banks send financial information to credit reporting agencies. If you consistently use your business bank account for all business-related transactions, you will establish strong credit in no time.

Having a separate bank account is another easy way to separate owner and business. Not only does it put your business on the credit radar, but it will also help to protect you in case of any negative business affairs.

Get a Business Credit Card

Once you open a business bank account, you’ll need to get a business credit card. Nothing reports to credit bureaus faster than a credit card. Consistently paying off your credit card balance every month is a quick and easy way to build business credit. You can use your business credit card with vendors for a simple and reliable payment method.

As an added bonus, most business credit cards also offer unique benefits and rewards specific to businesses.

Work with Vendors that Report Payments

Just like your credit card reports payments to credit bureaus, so do some vendors. Working with vendors that report payments is another way to build strong business credit. If you’re not sure if a vendor reports payments, just ask. It’s better to know for sure than to assume. If a vendor doesn’t report payments, doing business with them will not affect your credit score at all, so you might be better off doing business elsewhere, especially if you’re trying to build credit.

Pay on Time

The number one rule to building credit of any sort: pay your bills on time, every time, no matter what. Even if you don’t think a vendor is reporting payments, don’t take the chance. Payment history has a huge effect on credit score. In fact, paying bills early can help with building business credit even further.

If you’re not the most organized or you’re too busy growing your business to keep track of payments, outsourcing your accounting and bookkeeping is an effective way to ensure that your bills are always paid on time.

Monitor All Your Credit Scores

There are three primary credit agencies for businesses: Dun & Bradstreet, Equifax Business, and Experian Business. Each agency reports credit scores in different ways, so it’s important to keep an eye on all three. Unfortunately, checking your business credit scores will cost you, but it’ll be worth it to make sure that you’re heading in the right direction.

Follow these steps, and you’ll be well on your way to establishing strong business credit for years to come.

Next, learn how to increase profitability in your business with our free guide.

Guide to Driving Profitability for Your Service Business