If you’ve been through the process of building your personal credit, you know it takes commitment. Building your new business credit is similar in this way, but it’s a little more complicated than building your personal credit. Whether your business is new or it’s been operational for some time, you can follow these five steps to improve business credit reports:
1. Review your business and personal credit reports
Start by reviewing your current baseline. What is in your personal and business credit reports? Many small business owners don’t know how to check business credit reports. There are several ways, starting with the three major business credit bureaus (Dun & Bradstreet, Experian, and Equifax). Unlike consumer credit reports, there is no legal obligation for the credit bureaus to provide any free information.
What are the ranges of a business credit score?
There are multiple business credit scores so that makes it a bit more complicated. Competing agencies create and sell different business credit scores Dun & Bradstreet, Equifax, and Experian all created their own business credit scores with different ranges.
2. Build your business credit
To start building your business credit, you will first need to take the following steps:
- Incorporate your business, or form a limited liability company (LLC). This ensures your personal and business personas will be separate and tells the credit bureaus to start tracking your new business.
- Apply for a federal employer identification number (also known as EIN) with the IRS. An EIN acts like a Social Security number for a business entity.
- Apply for a business bank account. Make sure you use your new business’s legal name.
- Get a dedicated business phone line. You’ll also need to make sure it’s listed under your new legal business name.
- Register with Dun & Bradstreet to get a D-U-N-S number for free. DUNS is used to identify each physical location of your business.
The Business credit bureaus will gather information about your new business from public and private sources. For example, they will look at legal filings, liens, and the industry your business operates in to determine risks and benchmarks for your newly registered business. They can also identify your business’s payment history as reported by vendors you do business with, and use all of the data collected to generate scores.
In order to improve your small business’s payment history in the eyes of credit bureaus, you can negotiate Net 30 accounts with creditors and pay invoices with a business credit card (more on this below). This will keep cash in your business for the short term, and as you pay your invoices and credit card bills on time, it will build successful payment history and credibility.
3. Apply for a business credit card
In order to build your business credit history, we have to separate your private and business personas. To get started with your business credit history, you’ll need accounts with vendors that report your payment history to the credit bureaus on an ongoing basis. A business credit card will be a great way to separate private and business expenses.
4. Work with vendors that report your payments
Business credit bureaus give extra weight to vendors that report your payment history, and on-time payments. Current financial data will show that vendors are willing to extend credit to your new business. It will also show if you make on-time or even early payments. This helps the bureaus score your financial discipline.
Work with vendors that report payments to the business credit bureaus. This way, your on-time payments are likely to show up on credit reports. Such vendors include grocery stores, gas stations, utility companies, and your phone company to name a few.
Do all vendors report the payments to the bureaus? Feel free to reach out to the vendors and inquire if they report the payments. If they don’t, consider opening new accounts with vendors after verifying they’ll report your payments.
5. Monitor your credit reports
Just like with your personal credit report, there can be errors or fraudulent activity need to be removed. Make a periodical reminder to yourself to check your business credit reports. Review your payment history, accounts, and how the bureaus “view” your business. If you find an error, contact the bureaus to file a dispute and work to get it correct or removed from your credit report.
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