How to Build Business Credit the Right Way

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Learning how to build business credit involves a few basics and a little time. Once you know the steps, you can establish credit that can help your business and protect your personal credit.

What is Business Credit?

Business credit is a record of your business’s financial worthiness that helps an entity determine if they want to lend you money or do business together. It’s similar to a personal credit score, but instead of being tied to your social security number, it’s linked to your Employer Identification Number (EIN).

Several agencies produce a business credit score that ranges from 0 to 100. In general, businesses should aim for a score of 80 or higher. Factors like your outstanding balances, years in business, the size of your business, payment history and bankruptcies impact your score.

Business credit helps you grow your business worthiness to lenders, investors and other businesses. With good business credit, you can acquire better financing, increase the value of your company and keep your personal credit safe.

Building business credit takes time and a few simple steps. By establishing business credit, you and your business will prosper.

Here’s how to build business credit:

1. Incorporate Your Business

Register your business so that it becomes a legal entity. By incorporating it, you can begin to establish a positive business history. Your business credit score will be different from your personal one, making it easier to apply for a business loan or credit card.

Your business will seem more legitimate, which can help when applying for credit. The process of incorporating your business has several steps. You’ll need to decide what type of business to create, come up with a name, draft and file the articles of incorporation and pay the fee.

A business that is a separate legal entity, such as a corporation or limited liability company (LLC), is more likely to succeed at getting a small business loan than a sole proprietor or partnership.

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2. Obtain a Federal Tax Identification Number

A Federal Tax Identification Number or Employer Identification Number (EIN) is supplied by the Internal Revenue Service and identifies your business. An EIN is used to separate your business transactions from your individual transactions, like opening a business bank account—an important step in generating your first business credit report.

An EIN may also be needed when applying for a business credit card. Obtaining an EIN is straightforward and free. Go to the Internal Revenue Service website and fill out the online application form.

3. Open a Business Bank Account

By opening a business bank account, you can show your business’s income and expenditure to a lender. It also creates a working relationship with your bank.

This can be useful if you think you might apply for a loan in the future. Additionally, the ability to produce bank statements will give you more credibility in the eyes of lenders.

Many banks that offer personal accounts also offer bank accounts for businesses. Shop around to find good introductory offers and low fees.

4. Get a Business Phone Number

Like your address, your phone number is part of your business identity. Having one helps you appear more professional and trustworthy in the eyes of lenders and credit bureaus.

A business telephone number can be a local, toll-free or virtual number that is used remotely wherever you are. You can also purchase a second smartphone for your work communications, but it’s not necessary.

5. Open a Business Credit File

A business credit file is essential if you’re going to show lenders that you can borrow responsibly. A business credit file is helpful to apply for a loan, and also to obtain insurance or a lease.

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The healthier your business credit report and credit score are, the more options you have for borrowing. To generate a credit file, you need to put your business on the map, establishing it as a financial entity and opening a business bank account.

The three business credit bureaus, Experian, Equifax and Dun & Bradstreet, all charge a fee for obtaining your business credit file. Monthly subscription options are available if you plan to check your file often.

A less expensive option is to sign up with a credit monitoring service, like Nav, Creditsafe.com or Credit Signal, which sometimes offer free reports and plans.

To boost your chances of obtaining credit, you should also apply for a D-U-N-S® number. This is a globally recognized number that’s used to locate a company’s Dun & Bradstreet business credit file.

Some companies only work with you if you have this number. A DUNS® number can be easily obtained via the Dun & Bradstreet website.