Establishing business credit is an important step for some small business owners. If you want to obtain a business loan or simply separate your personal credit from your business credit, you need to work on establishing and building your score.
Some lenders may even require or prefer that you have a business credit score.
The good news is that there’s no big secret to establishing business credit even though it is slightly different from what you may do with a personal credit score. Here’s what you need to do to build your business credit score.
Incorporate Your Business and Get an EIN Number
Legitimizing your business is not super important when you’re starting out if you just want to make money quickly. You might want to work as a contractor or sole proprietor at first to make sure your business idea is a good fit and will be successful.
However, once you start getting serious or realize you need funding, it will be time to legitimize your business and register it with your state.
You can do this by becoming an LLC or S-Corp. The huge benefit of doing this is that it separates your business identity from your personal identity. You’ll also get an EIN number which is basically a social security number for your business. It’s safer to use than your personal social security number when doing business. Your EIN number is required on federal tax filings and it’s also required to open a business bank account.
Open a Business Bank Account
This should be your next step and it’s important to have a business bank account so your finances can remain separate from your personal finances. You’ll open the checking account in the legal name of your business and make sure you can meet all the requirements to keep the account open.
Set up your finances so that any business expenses you make can come solely from that account.
Set Up a Business Phone Number
Most small business owners just do business from their personal cell phone and that’s perfectly fine. If you have a landline or separate number for your business that’s great but if you don’t, you can just use your personal number.
Be sure to list right along with your business in online and local directories. Even if you don’t take many calls, this is important to do before you get to the next step.
Open a Business Credit File
Did you know you could open a business credit file with Equifax, TransUnion, and Experian? In order to do so, you must have a business bank account and a business phone number. You can see Experian’s requirements here.
Once you open a credit file with all the major credit bureaus, you’ll be able to start building your business credit score.
Get a Business Credit Card or Establish a Line of Credit
If you obtain a business credit card, be sure to pay your bill with funds from your business checking account. You can build your business credit by using your credit card to buy supplies and cover regular business expenses then pay the bill off in full each month.
If you work with any vendors or supplies, you can establish a line of credit with them for your purchases and ask them to report your payments to the major credit bureaus.
Over time, your positive payment history will build your business credit score and make you look more attractive to lenders.
Building your business credit score requires a few extra steps but it’s a pretty simple and straight forward process. It’s also not required for entrepreneurs to have a business credit score.
It all depends on your goals and intentions. If you feel having a business credit score would help you, try the steps mentioned above to get started.