How to Build Your Business Credit in 8 Steps
- What is Business Credit?
- The 8 Steps to Building Business Credit
- Step One: Get an EIN
- Step Two: Open a Business Bank Account
- Step Three: Get a Business Credit Card
- Step Four: Register with DUNS and Pay Your Bills on Time
- Step Five: Use Credit Builder Loans and Secured Credit Cards
- Step Six: Get Trade Lines
- Step Seven: Monitor Your Business Credit Score
- Step Eight: Use a Business Credit Reporting Service
You’ve decided to start a business. That’s great news! But there’s one more thing you need to do before you get started: build your business credit .
Luckily, it’s not as difficult as it may seem. Follow these 8 steps and you’ll be on your way to excellent business credit in no time.
Checkout this video:
The first step to building business credit is understanding what it is and how it works. Business credit is a score that measures the financial health of your business. It’s similar to a personal credit score, but it’s based on your business’s financial history instead of your personal history.
Building business credit can be a great way to get access to more financing options and improve your chances of being approved for loans. It can also help you get better terms, such as lower interest rates.
There are a few different ways to build business credit, but the most important thing is to make sure you’re paying your bills on time and keeping a good credit history. Here are eight steps you can take to build business credit for your small business:
1. Get a business credit card.
2. Pay all of your bills on time.
3. Keep your balances low on revolving accounts.
4. Get listed in business credit reporting databases.
5. Use vendor lines of credit wisely.
6. Monitor your business credit reports regularly.
7. Guard against identity theft.
8 Seek help from a professional if needed
What is Business Credit?
Business credit is a credit score that lenders use to determine the creditworthiness of a business. This score is based on information in your business credit report, which is a report that contains information about your business’s financial history.
Lenders use business credit to decide whether to give you a loan, and if so, how much to charge you in interest.
There are two main types of business credit:
-Credit cards: You can get a business credit card by applying with a lender that offers them. The limit on the card will be based on your credit score, and you’ll be responsible for making monthly payments.
-Loans: You can get a loan from a bank or other financial institution by applying and going through the underwriting process. The amount you’re eligible to borrow will be based on your credit score and other factors, such as your business’s revenue.
The 8 Steps to Building Business Credit
Building business credit can be a daunting task, but following these 8 simple steps can help you get on the right track. First, you need to understand what business credit is and how it works. Once you have a clear understanding, you can start working on building your credit. following these steps will help you get on the right track to building strong business credit.
Step One: Get an EIN
You need an Employer Identification Number (EIN) before you can begin to establish business credit. Unfortunately, this number is not always easy to obtain. The first place to start is with the IRS website. The process generally takes about two weeks if you apply online, and you will need to have your business license or formation documents handy. If you are unable to obtain an EIN from the IRS, there are services that can help you get one for a fee.
Once you have your EIN, it’s time to start building your business credit profile by opening accounts in your business name only. Do not use your personal credit or Social Security number when applying for these accounts.
Step Two: Open a Business Bank Account
Opening a business bank account is an important step in building your business credit. By using a business bank account, you will be able to keep your personal and business finances separate. This will make it easier for you to track your expenses and income, and it will also help you build a positive payment history.
To open a business bank account, you will need to have your Employer Identification Number (EIN) handy. You can apply for an EIN online at the IRS website. Once you have your EIN, you can contact your local banks or credit unions to see if they have any special offers for businesses.
When you are choosing a business bank account, be sure to compare the fees and services that are offered. You should also see if the bank offers any special services for businesses, such as merchant services or loans.
Step Three: Get a Business Credit Card
The third step in building your business credit is to get a business credit card. This can be done by either applying for a business credit card with a major credit card issuer or by getting a business credit card through a financial institution that specializes in small business financing.
There are a few things to keep in mind when applying for a business credit card, such as:
-Make sure the credit limit is high enough to cover your needs
-Look for a card with rewards or cash back programs that will benefit your business
-Check the interest rate and fees to make sure they are reasonable
Once you have been approved for a business credit card, use it wisely by paying the balance in full each month and always making payments on time. This will help you build a strong payment history, which is one of the most important factors in building good business credit.
Step Four: Register with DUNS and Pay Your Bills on Time
You’ve finally taken the plunge and started your own business. Congratulations!
One of the first things you’ll need to do is establish business credit. This will give you access to lines of credit and loans that you can use to finance your business.
Building business credit can seem like a daunting task, but we’ve broken it down into eight easy steps. Follow these steps and you’ll be on your way to a healthy business credit rating in no time.
Step Four: Register with DUNS and Pay Your Bills on Time
D&B’s paydex score is one of the most important factors in determining your business credit score. You can register with D&B by providing them with your company information, payment history, and contact information.
It’s important to keep an eye on your paydex score and make sure you’re paying your bills on time. fifteen days after the invoice due date, D&B will report any late payments to the credit agencies. This will negatively impact your paydex score and could lead to higher interest rates on future loans.
Step Five: Use Credit Builder Loans and Secured Credit Cards
Now that you have a business credit file and you’ve started to establish some business credit history, it’s time to start using credit to help grow your business. One way to do this is to take out a credit builder loan or get a secured business credit card.
A credit builder loan is a loan that is specifically designed to help people build their credit. With a credit builder loan, you borrow a set amount of money and make payments over time. As you make your payments on time, you begin to build up your business credit score.
A secured business credit card works in much the same way as a regular credit card, except that you have to put down a security deposit equal to your line of credit. This deposit acts as collateral in case you can’t make your payments and helps to lower the risk for the issuer. As you make your payments on time, you begin to build up your business credit score.
Both of these options can be great ways to help build your business credit and improve your chances of getting approved for other forms of financing in the future.
Step Six: Get Trade Lines
One of the best ways to build business credit is by securing what’s called “trade lines.” A trade line is an account with a supplier or vendor that reports your payment history to the business credit reporting agencies.
There are two types of trade lines: revolving and installment. A revolving account is one where you have a set credit limit that you can borrow against and pay back over time, like a credit card. An installment account is one where you make fixed monthly payments, like a car loan or lease.
Having both types of trade lines will help you build strong business credit. You can get started by asking your suppliers and vendors if they report to the business credit agencies. If they don’t, see if they’re willing to start reporting your account. Many companies will do this if you ask them.
Once you have trade lines, make sure you pay your bills on time and keep your balances low. This will help you build a strong Payment History, which is one of the most important factors in your businesscredit score.
Step Seven: Monitor Your Business Credit Score
Even if you don’t plan on using your business credit anytime soon, it’s important to monitor your business credit score. By regularly checking your score, you can catch any potential problems early and take steps to fix them. You can get a free business credit report from Dun & Bradstreet, Experian, and Equifax.
Step Eight: Use a Business Credit Reporting Service
Now that you’ve worked hard to establish business credit, make sure you keep track of your progress. A business credit reporting service can help you do just that.
There are a few things to look for when choosing a business credit reporting service. First, make sure the service reports to all three major business credit bureaus: Experian, Equifax and Dun & Bradstreet. Second, look for a service that offers free monitoring and alerts so you can be immediately notified of any changes to your report. Finally, choose a service with a good reputation and positive customer reviews.
By using a business credit reporting service, you can stay on top of your credit building progress and ensure that all your hard work pays off.
Building business credit is not an overnight process, but it is definitely worth your time and effort. By following the steps outlined in this guide, you can establish a strong credit profile for your business that will help you qualify for the best terms on loans, lines of credit, and other financing products. And, by maintaining a good credit score, you can save thousands of dollars in interest over the life of a loan.
Building business credit is an important step in the life of any small business. By taking the time to establish a strong credit history, you can position your company for success both now and in the future.