Establishing business credit is crucial for the success of any new venture. As an entrepreneur, there are several key steps to take in order to establish a good credit profile. First and foremost, it is essential to separate personal and business finances by forming a legal entity such as an LLC or corporation. Next, opening a business bank account and obtaining a federal tax identification number (EIN) is necessary.
Maintaining a positive business credit history can be achieved by consistently paying bills and obtaining trade credit from suppliers who report to credit bureaus. Additionally, applying for a business credit card and utilizing it responsibly can help to build credit. Lastly, regularly monitoring and reviewing credit reports to identify and resolve any errors or discrepancies is vital. By following these steps, you can lay the foundation for a successful business while building a solid credit history.
As you work to understand your startup costs and expenses, you’ll also want to make sure your credit is in good stead. Poor credit history is one of the main reasons why loan applications for small businesses are often declined. Poor credit history can also impact insurance rates and the attractiveness of your business to potential partners, suppliers, and vendors. That’s why cultivating and maintaining good credit scores for both your personal and business lines of credit is so important.
Apply for business credit
Establishing and managing business credit can help your company secure financing when you need it and with better terms. It can also help you negotiate supply agreements and protect against business identity theft.
One of the first steps you’ll want to take is to register for a Dun & Bradstreet number, or DUNS number. A DUNS number is a unique nine-digit identification number for each physical location of your business. Dun & Bradstreet also offers guidance on how to build business credit
Maintain good personal and business credit history
Existing businesses have the advantage of an established financial history. But loan eligibility for a new business is typically based on its owner’s personal credit score.
While not every small business owner has good credit, some may in the first stages of establishing credit. The Consumer Financial Protection Bureau (CFPB) offers tips to help people with limited credit histories get started.
CFPB’s Credit Reports and Scores webpage is a good place for most people looking to burnish their credit history and improve their scores. If your credit history needs help, the Federal Trade Commission has recommendations for improving your credit
Check and monitor your credit
It’s important to monitor both your personal and business credit reports, especially if you believe you have been the subject of identity theft.
To monitor your personal credit, visit the Annual Credit Report website, the only authorized source for the free reports guaranteed by law.
To monitor your business credit, you can get a copy of your company’s report from Experian, Equifax, Dun & Bradstreet, or other several smaller credit reporting services.
Find more tools to help you check and monitor your credit.
Business Credit vs. Personal Credit
While both business credit and personal credit seek to paint a picture of financial responsibility, they are separate and distinct. Assuming your business exists as its own entity, its credit scores and ratings will apply to the company and not to its owners or officers. Conversely, a personal credit file is designed to measure the creditworthiness of an individual.
Building your business’s credit scores and ratings isn’t something that can be done overnight. Responsible business owners should work to establish and maintain reputable scores and ratings to help put their best foot forward when a lender or potential business partner accesses their business credit report.
