Why do you need to build business credit?
Building business credit gives you more financial opportunities for your company. It allows you to get loans. So, you can have more funds to expand your business. For instance: branching out, buying more equipment, hiring more staff, etc. Banks, lenders, suppliers, insurance, and leasing companies, rely on business credit reports to assess the creditworthiness of your business. A good business credit score provides financing companies the assurance and peace of mind that you are capable of paying. Thus, it ensures that you’ll have no trouble getting more funds for your business.
How to build business credit?
1. Register your business as LLC, LLP, or corporation. This is important to give your business a separate legal entity from you as an individual. If you register and operate your business as a proprietorship, the government and credit bureaus will treat both your business and you like the same legal entity. Therefore, all your financial and credit transactions will be reflected in your personal credit report.
2. Obtain a Federal Tax ID Number. This is required when filing for company tax returns, applying for licenses and permits, bank accounts, and business credit.
3. Opening a business bank account. This is necessary to create a separation between your personal and business expenses. This will help credit bureaus and financing companies easily see how the business money has been managed.
4. Establish credit with vendors. Buying supplies through credit is reported to credit agencies. This then creates a credit profile for your business. After several credit transactions, your business credit score will be generated.
5. Monitor your business credit reports. There are three major credit bureaus that provide business credit reports: Dun & Bradstreet, Experian, and Equifax. Each of them collects data from various sources. This means that they may have different information about your company. It’s important to review these reports so you can request the correction of invalid information as soon as possible. Before it can hurt your credit worthiness.