Opening A Business Credit File

A healthy firm, particularly a small one, requires good business credit. Cash flow is provided through business credit. This enables your organisation to purchase products and services, pay workers, pay bills, and execute other critical business operations.

Creating a Business Credit File with the Commercial Credit Bureaus

There are many processes involved in establishing a company credit file:

1. Formalize Your Business Entity

To begin a business credit profile, businesses must be registered with the state.

There are three kinds of business entities: sole proprietorship, limited liability company (LLC), and corporation.

Sole proprietorships are only registered in a few states, and they do not give any asset protection to company owners in the case of a loss. If you own a company but have not registered it as an LLC or corporation, you are most likely a sole proprietorship and will not be able to generate business credit.

The majority of company owners will gain the most from forming an LLC. A company should be formed only by small firms that need to attract investors.

2. Obtain an EIN

After deciding on a firm structure, you must get an Employer Identification Number (EIN). To submit a tax return, establish a bank account, or apply for a loan, your firm must have an EIN.

You may get your EIN for free using the IRS website, fax, or mail. Read our What Is an EIN article to discover more about EINs and how they might help your LLC.

3. Look for your company in credit reporting agency databases.

Before creating a credit file with a credit reporting agency, check to see whether you already have a file with them. If this is the case, get your company credit report and examine it for accuracy.

4. Obtain a DUNS Number

A DUNS number is a nine-digit identification number received from Dun and Bradstreet. This number distinguishes your company as a distinct, independent entity. Creditors check up your company credit file using your DUNS number to discover your credit history.

5. Establish a distinct business bank account and phone number.

By opening a business checking account, you can keep your company and personal funds separate. A business bank account can also help your company’s financial security and provide you access to financing.

Open a business bank account by visiting one of the numerous online banks that provide this service, such as Chase Bank and BlueVine. Read our guide to the top banks for small businesses for a list of our suggested business bank accounts.

To create a credit file with the main credit agencies, you will need a business phone number in addition to a business bank account.

Set up Net 30 accounts with suppliers or lenders that report to credit bureaus.

Net 30 accounts are credit lines granted by suppliers to companies. The majority of net 30 suppliers report to corporate credit agencies.

Pay all net 30 accounts within 30 days of the invoice date. A solid payment history is essential for improving your credit score.

7. Obtain a Business Credit Card

Obtaining a business credit card will aid in the establishment of company credit. Because your credit card provider will report your account activity to them, the business credit bureaus will begin to take note of your firm.

To get a company credit card, follow these steps:

Investigate company credit card possibilities online and choose the one with the most beneficial features.

Fill out the online business credit card application form to apply for the offer. Use your EIN rather than your Social Security number.

Allow a week or two for a written answer.

Begin using your new company credit card, and be sure to pay off the whole sum each month.

8. Create Store Credit Card Accounts

Stores that provide store credit cards may report to corporate credit agencies as well. Apply for in-store credit cards six months after you’ve established your net 30 accounts and established a credit history. These cards provide revolving lines of credit that may help you build your business’s credit profile.

Why Do You Need a Business Credit Report?

There are various reasons to start developing business credit and create a business credit file:

Buying equipment. Purchasing equipment necessitates a considerable upfront investment, even if it saves money in the long term. A solid business credit score and a business credit file can assist you in obtaining the finances your firm requires.

Maintaining your company. Even if you’re not earning a profit, having a good cash reserve can help you weather an economic slump.

Increasing the worth of your company. Companies with strong company credit attract investors and purchasers. Remember this while creating a company strategy.

Developing business partnerships A successful firm requires good connections with vendors, suppliers, manufacturers, retailers, and others. Having enough money to pay off obligations on time contributes to the development of such connections.

What Are the Major Commercial Credit Reporting Agencies?

Pull your business credit reports and check your company FICO score on a frequent basis to manage your business credit. Here are the main commercial credit reporting agencies where you may do so:

Small Business Scoring Service (SBSS) Score from FICO (scores creditworthiness from 0-300).

PAYDEX Score from Dun & Bradstreet (scores creditworthiness from 0-100).

Credit Score Experian Intelliscore Plus (scores creditworthiness from 1-100).

Equifax Payment Index Score (from 1-100), Business Credit Risk Score (from 101-992; the higher the score, the lower the risk), and Business Failure Score (scores risk from 1,000-1,610; the higher the score, the better likelihood your business will still be around in 12 months).

How to Obtain a Credit Report for Your Small Business

Your company credit file is created by the main business credit agencies. These commercial credit agencies collect business and credit information on millions of organisations worldwide.

The information is derived from several sources, including UCC filings, payment histories from banking institutions, incorporation filings, print and online directories, company registrations, and others.
A business credit monitoring service may save you time by monitoring your company’s credit reports and advising you on how to establish business credit the best way possible.

You may also use a credit reporting agency to get your credit report.

How to Safeguard Your Company’s Credit

Protecting your company’s credit is critical for its long-term health since it allows you to continue taking out loans at affordable interest rates and otherwise preserve cash flow. Here are some pointers:

On time payment of all bills and credit lines

Paying your bills and credit lines late may harm your company’s credit. A bad payment history can reduce your business credit score, causing potential lenders to delay and charge your firm greater interest rates since it is regarded to be a larger risk. Alternatively, they may refuse to lend to your organisation entirely.

Examine and correct any errors or discrepancies in your credit report.

Business credit reports, unlike personal credit reports, are not always free. Nonetheless, it is critical to check your company credit ratings on a regular basis and properly analyse your credit reports.

When reviewing your reports, notify the credit reporting agency of any erroneous or conflicting information. This contains information such as your company’s phone number, website, location, and so on.

Avoid Using Predatory Lenders

Loan sharks are skilled at preying on enterprises trying to establish commercial credit. Only take out loans you know you can repay, and avoid ones with high daily interest rates.

Paying off business debts with personal accounts is not a good idea.

Mixing company and personal finances is never a smart idea, particularly when it comes to debt repayment. Lenders may think that you don’t have adequate cash flow to take on additional debt if they discover you paying your company’s bills with personal finances.