How to Start Building Business Credit

There are four basic steps to building a strong business credit portfolio. Following these steps will ensure that your business credit is established separate from your personal credit, thus reducing your personal liability within your own company.

Register your company with the top credit bureaus used in business credit. The top three credit bureaus used in business credit are Dun & Bradstreet, Business Experian, and Business Equifax. Almost all creditors will use one of these three credit bureaus to determine if, and how much credit they will extend to your company. Dun & Bradstreet is the top business credit bureau, so it is best to set up your profile with them first. They will assign a DNB (D-U-N-S) number for your business and a password so that you can assess your credit profile. After you have entered your business information and set up your business credit profile, you will repeat these steps for Experian and Equifax. You will need to have your incorporation paperwork and EIN number from the IRS to complete your credit profiles at the credit bureaus.

After you have successfully set up your credit profiles at the top three credit bureaus, you will need to pull your initial credit reports. Although your credit profiles will be initially blank, check your credit reports for accuracy and update any missing or wrong information. If your profiles are set up correctly, and the information is correct, you can proceed with setting up accounts with the creditors.

Now that you are incorporated, and have active credit profiles that are true and accurate, you can now begin opening accounts under the business name. NEVER allow your personal information to be used when applying for accounts. Using your personal information (date of birth, Social Security Number, etc) is the same legally as giving a personal guarantee on that account. Personal guarantees equate to personal credit. Any account set up using your personal credit information will be reported to your personal credit profile and not your business credit profile. It will also increase your debt-to-income ratio and lower your FICO score. You will also be personally liable for that debt even if your business fails for any reason. Apply for accounts using your EIN number and/or DNB number instead of using your Social Security number. This will ensure your accounts are set up as true corporate credit, established solely under the business name. Start with small accounts such as Net-30 vendors. Once you have 2 Net-30 accounts reporting to your credit profiles, you can advance to low-end revolving credit lines. (To have your initial credit score issued by Dun & Bradstreet, you will need to have 4-5 accounts reporting with a two month payment history on each account. This credit score is called your PAYDEX score and ranges from 0-100. An 80 PAYDEX score is equivalent to a 750 FICO score used in personal credit). We suggest you obtain 4 low-end revolving credit lines before advancing to your mid-range revolving creditors. Low-end revolving creditors are accounts ranging from $1500- $2500. Repeat the same process with your mid-range revolving creditors, obtaining four mid-range accounts. Mid-range creditors are accounts ranging from $2500-$7000. Once you have completed your mid-range revolving creditors, you can advance to your bank-level credit card issuers such as MasterCard, VISA, Discover, and American Express business accounts. Using this formaula will ensure each creditor is extending your business the highest credit limit possible. After you have completed all four tiers of credit, your company will now be in line for bank-level financing and will also qualify for most leasing programs nationwide.



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