Owning a business may be extremely tough and stressful at times. Having a strong company credit profile, on the other hand, might make owning a business easier. Personal credit is similar to your business credit in that it allows your company to borrow money from banks and other lenders.
What is Business Credit?
Business credit is a history of a company’s financial responsibility that firms, investors, and financial institutions use to assess whether or not that company is a good prospect for lending money or doing business with.
Separating personal and company credit is equally crucial as a small business owner. Consider your small company credit as a barrier between your business and personal credit histories. Company credit is connected to your business entity and a distinct Tax ID number, rather than your name and Social Security number.
Essential Things to Consider in Building Your Business Credit
It’s critical to learn how to start establishing or restoring credit for your company. Building a high credit rating is crucial whether you are starting a business or already have one, as it aids in the optimization of your business operations.
More often than not, it is essential to utilize your personal credit history to get money to finance purchases and establish credit in the early phases of developing company credit. However, the company and personal credit profiles should be kept separate because private funds to support a business make you personally accountable.
Before beginning operations, you must begin the process of establishing credit for your company. To get started building credit right away, you’ll need to do the following:
- Business as a Legal Entity – It is essential to register your business as a distinct organization to separate your credit score from your business credit score. To be qualified as a distinct entity (LLC), the business must be organized as a corporation or a limited liability company to be qualified as a separate entity (LLC).
- The number of Taxpayers’ Identification – The next stage in establishing significant credit for your company is to obtain a tax ID number (also known as an Employer Identification Number, or EIN). Business credit reports are linked to a tax ID number, similar to how personal credit scores are connected to a person’s Social Security number.
- Bank Account for a Company – You may separate company and personal finances by opening a business bank account. Furthermore, while asking for business financing, a company bank account can be used as a bank reference.
- Phone Number for Business – It’s critical to have a business phone line since credit reporting companies utilize it to index your company in their databases. Furthermore, credit reporting organizations use your phone number as confirmation that you are doing business.
- List of Companies – Make sure you give each credit agency and trade credit vendor the exact company location and phone number. Make that the company’s address and phone number are included in the 411 Directory (White Pages) and the Yellow Pages.
- A D-U-N-S number is a number that begins with the letters D and ends with the letters – A D-U-N-S Number is a 9-digit number provided by Dun & Bradstreet that most firms use to validate a company’s credit history. The US government and many companies require a D-U-N-S Number for their suppliers and contractors. It’s important to remember that having a D-U-N-S number is only the beginning. You’ll need to start developing your company’s credit profile by conducting business with Dun and Bradstreet-reporting creditors and/or suppliers.
How to Begin Building Credit by Registering with Credit Bureaus
Many of your company’s lenders and suppliers submit information about your firm to business credit reporting bureaus, such as how you pay your bills or borrow money. D&B, Experian Business, BusinessCreditUSA, FDInsight, and ClientChecker are just a few of the many business credit reporting organizations. Most suppliers, creditors, and lenders use Dun & Bradstreet, Experian, and Equifax Business to obtain their reports. It’s a good idea to get an account with one of these three business credit reporting bureaus.
By registering, your business may begin establishing credit through its credit databases. Potential customers, suppliers, and lenders can search the database for basic information about your business. Because reporting timely payments to these business reporting agencies is not required, it may be essential to ask firms you operate to do so. These contributions improve your credit score and confirm your company credit reporting agency registration.