10 Tips To Building Business Credit
If you are planning on starting your own business, your business credit is just as important as your personal credit. Creditors and suppliers are referring to your business credit reports for a strong credit history before they will lend you money.
To get you on the road to success, here are ten steps you should take in order to begin establishing good business credit.
Establish a Federal Employer Identification Number
This is one of the first steps to laying the groundwork for a new business. A federal EIN issued by the IRS, is used to identify your business as its own entity and is also used when registering with the business credit bureaus like Dun & Bradstreet.
Secure a DUNS number from Dun & Bradstreet.
Once you have established an EIN for your business, you now need a DUNS number from Dun and Bradstreet. As one of the key business credit bureaus, their PAYDEX score is utilized by many lenders to decide how creditworthy your business is. Dun and Bradstreet has many paid services but a DUNS number you can get for free.
Open both business checking and savings accounts
Once you open both a business savings and checking account, your business will be able to demonstrate a history of payments, revenue and cash flow. This will show creditors that you are responsibly running a fully operational firm. If you have a long standing relationship with your personal bank, it may be a good idea to open your business accounts with them. Since there is an existing relationship, this could get you automatically approved for lines of credit and/or business credit cards.
Open commercial accounts
Opening certain kinds of commercial accounts for your business (utility company, a phone, hosting or internet provider, bottled water etc.) and sharing a history of payments, can go a long way in showing how fiscally responsible you are. Securing commercial credit is a simple way to begin creating business credit.
Get a dedicated business address and phone number
As a startup, you may not have a physical office location yet, so looking into setting up a virtual office so that you have a business address. For a phone number, a voip service rather than a cell phone should be considered. Business directories like yp.com and local.com are who the credit agencies and lenders get their data from, so it is important your contact information is consistent across all the popular business directories. Here is a compilation of 50 online business directories to refer to.
Open a secured business credit card
Being a brand new business, you will most likely not get approved for a credit card since there is no credit history present. This is where a secured business credit card comes in handy. You can get a credit line equal to the amount deposited onto the card. Even if it is just $1000, it is worth it to do. The monthly reporting they do back to the credit bureaus will go a long way in establishing a positive credit history for your business.
Establish lines of credit with vendors
Big box stores like FedEx, Staples, Office Depot and Home Depot are just a few that report back to the credit bureaus. You may even have relationships with these businesses already and a quick phone call to request a credit line may be all you need to do. You should also look into a gas card. Many stations offer corporate gas cards that report back to the bureaus as well. Ideally, you want to have more than five of these vendor accounts reporting back to D&B, Equifax and Experian.
Hire a business credit coach
Enlisting a business credit coach can be very helpful in making the credit-building process easier. Aside from educating you on the process, they will handle things like sending out letters to creditors and credit-reporting agencies to get items removed from your personal credit report. They are also helpful in providing lists of businesses and credit cards that are typically easier for your company to get.
Do not submit too many applications
If you go out and apply for multiple loans and credit cards at the same time, lenders may get the impression you are trying to get a large sum of money all at once. They in turn may think your business is having trouble, which you do not want. Only apply for credit if you really need it.
Pay your bills on time every month
Paying your bills on time each month is one of the most important things you can do for your business. Each payment you make on time brings you that much closer to paying off outstanding balances and establishing a positive reputation and credit history for your business.
The process of building good business credit is key in helping you attain credit cards, lower interest loans and favorable terms from suppliers. It can also be helpful in attracting new customers as your business credit score is accessible and consumers will use it as a way to gauge your trustworthiness.