How to Build Business Credit

You probably know that credit is a way to evaluate your trustworthiness as a borrower, using a credit report (documentation of your past borrowing and accounts) and a credit score (a three-digit number that represents your history at a glance).

But here’s a curveball for you: What do you know about business credit?

Whether you’re a business owner or simply dream of striking out on your own one day, read on to find out how business credit differs from personal credit, why it’s so important and how to establish it for your own company.

Why Business Credit?

At its core, business credit is similar to personal credit—it represents your business’s ability to borrow money from authorized lenders, based on its past actions.

Personal credit, used to evaluate everything from your readiness for another credit card to the interest rate for your mortgage, is linked to your personal information—all contributing accounts are held in your name and with your Social Security number. Business credit, however, is linked to the business entity with a separate tax ID number. Once you establish business credit, a change in your personal credit history, like a foreclosure or late payments, won’t affect your business credit (and vice versa).

Business credit, like personal credit, is something to build before you need it. Of course, if you’re considering starting a business, emergency savings is important to have, but there’s always the chance that something might not go according to plan. At some point, your business may need access to credit to cover unexpected costs (think a sudden rent hike or cash flow issues) … so you don’t want to wait to until you’re backed into a corner to apply.

A common mistake many business owners make is funding their business expenses through personal lines of credit or personal credit cards, which in some cases makes them financially liable for the business entity’s actions. For example, the owner of a bakery who uses his own funds to buy supplies and pay the rent could be personally liable when he hasn’t paid in three months and creditors come a-knocking.

Plus, as a business owner, you’ll most likely be requesting loans for both your personal and business accounts, each of which require a lender to ask a credit bureau about your history. This means you’ll get more inquiries than someone who doesn’t own a business—and since each inquiry dings your score, it’s important to spread them across two different files to lessen their impact. As an added bonus, establishing business credit early on could mean that you receive better interest rates on loans when it’s time to apply, since you’ve had time to build a solid business credit history.

How to Get Started

The first step in establishing this independent credit is to make sure your business is a business, legally. If you haven’t filed the paperwork that makes your business official in the eyes of the bank and the I.R.S., you’ll need to do that before anything else. For more information on how to go about this, visit the Small Business Association website.

Next, you’ll need a separate business mailing address, phone, and name as well as a tax ID number from the I.R.S. Separate from your Social Security number, this number is known as a federal tax identification number (FIN) or an employer identification number (EIN). You can apply for your EIN directly through the I.R.S. website, which is a free service that will process your application within minutes. Once you’ve done this, you can open a checking account and savings account in the business name using the EIN number and deposit funds.

The last step is registering your business with at least one credit reporting agency. Before going through the process, make sure you don’t already have a credit profile by contacting Dun & Bradstreet, which issues the most widely used company identification number, called the D-U-N-S® number. Once you have a D-U-N-S® number, D&B will then set up a credit file for your business. Note that while credit bureaus such as Experian and Equifax also offer business credit services, the Small Business Association (SBA) primarily recommends the free service from D&B. Fun fact: While the pinnacle of a perfect personal credit score is 850, your business credit score is measured from 0-100, with anything over 75 considered excellent.

3 Ways to Establish Credit

Building good credit for your business may be tricky for one surprising reason: Reporting information to D&B or any other credit bureau is optional … and if the vendors, suppliers or creditors you work with choose not to report that information, it won’t go into your credit file.

To keep building your credit, you may want to ask any of your creditors or partners if they will report your positive payment history to the bureaus before doing business. If they don’t report it, you can register reputable businesses with whom you’ve worked on the D&B website in what are called “trade references.” D&B will reach out to these references and verify your history, which may positively impact your credit.

Even if you aren’t conducting credit-building transactions in your day-to-day (for instance, you work alone and with clients only) you can still use the following three options to build business credit:

1. Business Credit Cards. Keeping credit cards expressly for your business and completely separate from your personal accounts may help keep expenses in order when it’s time to do taxes, as well as help you resist the temptation to use personal funds for your company. Plus, if your credit card company reports your history to credit bureaus, it has the potential to increase your business credit score. For that reason, make sure your credit company will report to the bureaus before you sign the dotted line. Then, keep any cards active by moving recurring, fixed expenses (such as your internet bill, for example) to your card.

2. Business Loans. One popular method of business credit is a standard loan, issued by a bank or the SBA. Similar to a personal loan, it’s simply a sum of money that you pay back over time—with interest. Business loans can be used for anything from purchasing real estate to buying equipment to paying for inventory. Again, before going through the loan approval process, you may want to make sure your lender will report your activity to your credit bureaus.

3. Business Line of Credit. Once you have a business credit card and loan, you may consider applying for a line of credit from your bank. A line of credit is almost like a cross between a loan and a credit card: Your bank agrees to lend you a certain amount of money based on your existing credit, but doesn’t require that you borrow any of it immediately—instead, you can tap into this resource when you’re in need. The monthly payment amount varies depending on how much of this credit you used the previous month, and you only pay interest on the money that you take out. Lines of credit are mostly used for larger purchases that nascent business don’t always need right off the bat, but the more types of credit used for your business, the better.

Once opened, credit lines should begin showing up on your credit history after 30-60 days … and hopefully well before you need it.

LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third-parties listed, discussed, identified or otherwise appearing herein are separate and unaffiliated and are not responsible for each other’s products, services or policies.

Story originally by LearnVest.
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  • Alyssa

    Chelsea, this was very interesting! I’m currently in healthcare consulting (I was also a science major in undergrad) and have been wanting to get on a project in the pharma industry for a while. I hadn’t heard of CROs before reading this article! If I’m interested in learning more about them, what companies should I take a look at it? I’m in the Chicago area.

    • Thank you so much Alyssa! There are several who have offices in your area: ICON Clinical Research is one of them. But many CROs have individuals who work remotely. I would recommend you check out the websites to see if they have any of these types of positions!

  • So cool to see this side of you, Chelsea!! Learned so much about you I never knew, very cool 🙂 Congrats on the feature!

  • She’s adorable! Great article and great blog.

  • Sara

    First of all, Chelsea’s cube makes me want to redecorate my own! I love those festive tassels!! I also love Chelsea’s advice to drink water and invest in a good skin care regimen! And these pics, love! Go Cynthia!

    • Thanks Sara! Didn’t Cyn’s photos rock?! She’s fantastic and wonderful to work with!

  • Loved reading this so much! I am 24 and gave up my “career” working in mental health less than a year ago. It was a job I worked hard for in college and was once very passionate about. But I wasn’t done growing when I graduated and learned that it wasn’t my dream job after all. It is great reading your story on how you were able to still find your niche in the working world and continue blogging (and living a life separate from the both). Great article!

  • Betsy

    I love the articles about how women move up in the work force and find a job they love, gives me hope that I’ll move up eventually!

    • Thank you Betsy! And you totally will – find something you love and rock it out! Good luck!

  • I love all of the TEG career features, but sometimes I feel that the features are weighted heavily toward jobs creative industry – so it’s really nice to see a different type of job! And it’s nice you were able to weave a blog spotlight into it as well. And Chelsea – as a fellow Hokie – great to see your success!!

  • I agree that it was great to see a non-creative career highlighted! And, even better, it’s the industry I work in. I’m in St. Louis, but my company does tons of work in RTP- engineering and building the facilities that manufacture pharmaceuticals. It’s a really interesting industry to work in, and was something that I completely stumbled into after college.

    Her tips on attending meetings, learning as much as you can, and volunteering to help wherever are spot on. I graduated with a degree in communications, started at my company as the receptionist, moved into marketing, and now do project-related work as a construction estimator 4 years later.

    That’s the long way of saying you never know where you’ll end up, but it’s important to work hard! Upper management will notice- it’s how I’ve gotten to where I’m at today, because I’ve had a couple of great mentors who put me in the position I’m in and continue to challenge me to grow.

    Congrats to you Chelsea! And I’m excited to have found a new blog to read as well. I’d love to chat work with you also since we’re in the same industry (and share a love of design/fashion in such science-driven areas!)

  • Jess

    Awesome profile! Thanks for featuring a woman making her way in the corporate world. I’d like to see some more!

    • Thanks for the feedback Jess! I’m so glad that you enjoyed it!

  • linette

    Great feature! Agree with other comments that it’s a nice change to see a non-creative job highlighted and would love to see more like this.
    Would really like to know where Chelsea got the amazing tassel garland for her cube please!! thanks.

  • Nice articles, Clinical or public hospital services should be abide by according to rules of skillful managers which we get easy any resolutions from him or her so that any patients gets change to from ours service. So senior clinical project manager is so effective for service providers for any patients. Thanks for information.

  • greateralternatives

    Wonderful Post.! really very informative, thanks for this amazing post is best for business funding solution