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Establishing Your Business Credit: 5 Steps Towards Achieving Success

Welcome to our blog post on building your business credit! Having a strong credit foundation is essential for the success and growth of your business.

Whether you’re a small startup or an established company, establishing and nurturing your business credit can open doors to various opportunities, such as securing loans, favorable financing terms, and supplier relationships.

In this article, we will walk you through five crucial steps that will set you on the path to building a solid business credit profile. So, let’s dive in and discover how you can take your business credit to new heights.

To establish business credit, the initial step is to register your business and create a dedicated business credit profile. If your business is already established and engaged with vendors and suppliers, you may have already completed some of the following steps. However, if you’re starting from scratch, here’s what you need to do before applying for business credit in your company’s name:

  1. Incorporate your business or form an LLC (limited liability company): This legal step helps separate your personal and business finances, establishing your business as a distinct entity.
  2. Apply for a federal employer identification number (EIN): The IRS assigns a unique nine-digit EIN to identify businesses for tax purposes. This number is crucial for opening bank accounts and filing taxes.
  3. Open a business bank account: Establishing a separate bank account in your business’s legal name not only simplifies financial management but also demonstrates the professionalism and legitimacy of your enterprise.
  4. Set up a dedicated phone line: Obtain a phone line exclusively for your business and ensure it is listed under your business name. This helps create a distinct identity and enhances credibility.
  5. Register with Dun & Bradstreet (D&B): Registering with D&B allows you to acquire a free D-U-N-S number—a nine-digit identifier. This number plays a vital role in establishing your company’s D&B credit file and serves as a recognized business identifier.

By following these steps, you lay the groundwork for building a solid business credit profile that can unlock a range of financial opportunities and industry relationships.

Apply for a business credit card

Obtaining a business credit card offers numerous advantages, particularly when it comes to establishing and enhancing your business credit profile. Not only can business credit cards help you earn rewards on everyday business expenses, but many top cards also provide enticing welcome bonuses.

Regardless of the specific credit card you choose for your business, responsible management is key. It is crucial to prioritize timely payments and steer clear of late payment issues. Additionally, maintaining a low credit utilization ratio is essential. A high balance-to-credit-limit ratio can negatively impact your business credit score under certain business credit scoring models. By practicing responsible credit card management, you can maximize the benefits and protect the health of your business credit profile.

Open tradelines with vendors

Applying for trade credit from vendors and suppliers is another effective method to establish your business credit. Here’s a step-by-step guide on how to go about it:

  1. Search for vendors and suppliers that offer net repayment terms, e.g., net 30, 60, or 90.
  2. Confirm that the company reports activity to one or more of the major business credit bureaus (Dun & Bradstreet, Experian Business, or Equifax Small Business).
  3. Apply for a tradeline.
  4. Use your tradeline to purchase supplies, inventory, or other materials on credit for your business.
  5. Never pay late.

Do note that you may need to establish several vendor tradelines to be eligible for a business credit score. To qualify for a Dun & Bradstreet Paydex score, for example, your business must have at least two supplier tradelines and three credit experiences on your credit report.

Pay on time, preferably early

Payment history is the most important factor that influences your credit score — both business and personal. For personal credit scores, payment history accounts for 35% of your FICO score. Paydex scores, on the other hand, measure a business’s past payment performance. On-time payments, therefore, are a must if you want to earn and maintain a good credit score.

However, with some business credit scores, you might receive an added boost when you pay your credit obligations early. The only way to earn a perfect Paydex score of 100, for example, is to have a history of early payments on your Dun & Bradstreet credit report.

Monitor your business credit report

Just as it’s important to monitor the health of your personal credit report and score, you also should keep an eye on your business credit information. Mistakes and fraud can happen despite the business credit bureaus’ best efforts. And when errors appear on your business credit reports, they can harm your business credit scores.

Checking your business credit report won’t affect your business credit score. However, there might be a cost associated with reviewing your business credit information depending on how you access it. Here are a couple of resources you can use to check your business credit online:

  1. Dun & Bradstreet: CreditSignal provides free access to four of your Dun & Bradstreet scores for 14 days, then alerts you when your business credit scores or reports change. (Paid business credit-monitoring options are available from $15 per month.)
  2. Nav: Nav provides free business credit-monitoring services and access to your Equifax business report and Experian Intelliscore summary. (Paid business credit-monitoring options are available from $49.99 per month/$189 per year.)

You can also contact the other business credit bureaus to purchase copies of your business credit reports and scores.

If you discover inaccurate data on your business credit reports, you should dispute those items with the appropriate business credit bureau as soon as possible.

Bottom line

Credit score bureaus don’t reveal the exact formulas that determine your business credit scores. However, we know that registering your business, applying for business credit cards and opening tradelines with vendors can help build your business credit. Once you’ve completed those steps, try to pay early (or at least on time) and periodically monitor your business credit report.

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