While each business owner possesses a personal credit report, not every business maintains a business credit report. The creation of a business credit report involves the following steps.
Every business owner is equipped with a personal credit report, yet the same cannot be said for a business credit report. While a personal credit report is automatically established when an individual with a Social Security number begins employment or seeks financing, building a business credit report requires intentional steps. Here’s a guide to initiate this crucial business financing tool:
- Properly Establish Your Entity:
- Choose to incorporate your business as a C-Corp, S-Corp, or Limited Liability Company (LLC).
- Obtain an Employer Identification Number (EIN), open a dedicated business bank account, set up a business telephone line, create a business website, establish a business location, and maintain a clear separation of personal and business affairs.
- Ensure proper insurance coverage, develop a quality business plan, and engage legal advisers.
- Register the Entity with Major Business Credit Bureaus:
- Set up a business entity profile with major business credit bureaus, including Experian Business and Dun & Bradstreet (D&B).
- Acquire a D-U-N-S number and D&B PAYDEX Score from D&B, and an Intelliscore Plus from Experian.
- Begin Building the Business Credit Profile:
- Identify creditors that report on-time payment information to business credit bureaus.
- Consider shared secured loans and secured credit cards from local credit unions, ensuring they report to business credit bureaus.
- Explore companies like Grainger, Uline, Quill, OnDeck, and others that report on-time payments.
- Continue Building Your Business Credit Profile:
- After six to 12 months, apply to various business credit card companies to add additional trade lines.
- Reach out to vendors, suppliers, and consultants for potential trade credit that can be reported on your business credit report.
- Maintain a record of on-time payments and consider making payments earlier than scheduled.
- Advance Your Business Credit Profile:
- After 12 to 24 months of consistent efforts, explore options for business lines of credit, leasing, term loans, asset-based lending, and lower APR business credit cards as your business maintains a well-structured business credit report.
