How to Establish Your Business Credit From Scratch


Establishing business credit that is separate from your personal credit has many benefits and as a small business owner, it is very important you understand the difference between your personal and business credit, as well as how to go about establishing your business credit.

Benefits of separate business credit

Below are few benefits of having a separate business credit profile:

1. Your business has it's own credit profile

Having a credit profile for your business allows you to maintain a credit history for your business that is separate from your personal credit profile. This means none of your personal credit details will be tied to your business credit inquiries, approvals or financing.

2. Personal and business assets are separate

Separate business credit also allows there to be a clear separation of assets between the business owners personal assets and the assets that are tied to the business itself.

3. Access to better financing terms

It may give you access to better business financing terms and rates from banks and other lenders especially if you have established good business credit. In addition, suppliers may allow fewer / lower payments in advance of product delivery.

4. The ability to monitor your business identity

Separate business profiles means that you can protect yourself from business identity theft that you might otherwise not be aware of if your business credit was intertwined with your personal credit. You can also monitor your business in a similar fashion to the way you would monitor your personal credit.

So how do you go about getting your business credit set up?

You want to make sure the credit bureaus, as well as your business creditors and vendors, are able to confirm your business information when you apply for financing or business with them. Below are 7 steps you need to take to properly set up your business credit:

Step 1: Incorporate your business

This means setting up a corporation or an LLC (Limited Liability Company) to ensure your company is seen as a separate business entity. For businesses that are sole proprietorships and partnerships, the business is the same as the owner, so in order to have separate business credit, your business needs to be a corporation or LLC.

Step 2: Obtain a FEIN (Federal Employer Identification Number)

This is also used to identify your business as a separate entity. In basic & very general context, it is somewhat similar to your social security number but for your business.

Steps 3 to 7 are self-explanatory and are as follows:

Step 3: Open business checking and savings accounts in your registered business name

Step 4: Set up a dedicated business phone line in your registered business name and get it listed in the phone directories

Step 5: Open a business credit file with the 3 major credit bureaus for business - Experian, Equifax, and Duns & Bradstreet

Step 6: Obtain a business credit or charge that reports to the credit bureaus

Step 7: Pay your bills on time and in full where possible to build your business credit score (AKA your Paydex Score)

Once you've completed these 7 steps you are well on your way to establishing your business credit but remember similar to your personal finances, you need to manage your business finances responsibly - minimize debt, have a business budget and save money for your business.