how to start business credit

A Beginner’s Guide on How to Start Business Credit

Mark Dalio
By Mark Dalio 16 Min Read

One of the most important parts of starting a business is figuring out how to start business credit. This can include things like startup costs, expanding your product line, or developing new expansion strategies. Establishing a strong business credit profile early on can help make your immediate and future business plans a success. Raising money for a business is not an easy task but it can be achieved if done correctly. 

No matter how complicated it may seem, establishing business credit is not difficult. In fact, it can be done in a few short steps with the right planning and forethought. This article will walk you through the steps on how to start business credit so that when you’re ready for financing your business, your business is well-positioned to get approved for a loan and receive better terms than if you did not establish credit.

Businesses rely on business credit to finance the purchase of new machinery, acquire inventory, and expand their operations. Many lenders require assurances that they’ll be repaid on time, and one way they help define repayment risk is by analyzing the business’s credit scores and ratings on file with reporting agencies. These indicators can assist banks to determine whether or not to lend money.

Related: How to Decrease Your Risks while Starting and Running Your Business?

If you don’t have any money right now and you want to set up your business credit, it’s a great idea to do so in preparation for an eventual day when you may need to apply for external lending. Once your business credit is established, be sure to work on building it even further by working on maintaining your credit file.

When companies are looking to work with other businesses, they want to make sure that these businesses will be able to deliver on time or complete projects as promised- and have a low risk of going out of business. This is especially vital when it comes to contracts, where the company wants assurances that their terms will be met and their products will arrive on time.

What is business credit?

A business credit file can store basic information about a company, such as their name, contact information, and financial statements. This data may also be used by others to demonstrate the company’s stability and credibility. In the case of Dun & Bradstreet, this data would include public sources like financial statements (such as revenue and expenses), legal judgments (like settlements or verdicts from court cases), news reports (like articles written by staff writers at our media partner publications), and more.

Just like people, businesses can also have business credit reports and scores. Business credit bureaus like Experian, Equifax, and Dun & Bradstreet all keep records of debt payments and other credit data on businesses.

A 9-step guide on how to start business credit 

Step 1: Get your business known as a separate entity

Just because you’re starting a business doesn’t mean you have to put your name on the map. You can establish credit and make payments for your businesses just by having a business phone number and listing it in directory assistance! Create a business bank account with your legal name, so that all of your bills are paid regularly!

In order to have a strong credit standing, it is important for business owners to think about credit before starting their company. This is because a business’s structure can affect how lenders or potential business partners evaluate its credit outlook. Corporations and Limited Liability Corporations (LLCs) exist as independent entities and are generally blank slates when it comes to starting business credit scores in the initial stages and ratings. This separation of owner and enterprise should always be the best approach when looking to establish your company’s credit rating.

A company’s personal credit score is essential in both the past and future when obtaining financing or contracting opportunities. This is because a past mistake on your personal credit score could affect future opportunities, as lenders may be more hesitant to advance money to you if they’re afraid of another potential financial disaster on your part.

Step 2: Get a D-U-N-S Number

The D-U-N-S Number is a unique identification number for your business. it’s available on Dun & Bradstreet for no cost. Some lenders and potential business partners will use this number to check your business’s credit profile, making it absolutely essential before applying for a loan. It separates your business from all other businesses worldwide. To apply for a D-U-N-S Number, click here

Step 3: Get your EIN from the IRS 

EIN or Employer Identification Number is essential to file the taxes of your company. An EIN is a social security number for a business. It is asked for on federal tax filings and is also required to start a business bank account in the name of the corporation or LLC. Many larger businesses also apply for an EIN from their vendors in order to pay them for services provided. So as to remain in compliance with IRS requirements. You can apply for an EIN by clicking here

Step 4: Start a business bank account

Before thinking of how to start business credit, you might have already had a business bank account. If not, open one now. If you want to establish your business’s independent identity, using a business bank account is the way to go. This can also help build a track record with the bank and make it easier for future credit applications. A business bank account should be in the same name as your company, as opposed to an individual cardholder’s personal bank account. Credit cards still have an impact on businesses’ credit ratings and scores- so don’t expect these transactions to affect your company’s ranking!

A business bank account is a great way to keep your business financials separate from your personal finances. This will make it easier for you to get the funding you need when necessary, and it can also give you access to loans when needed. You can find many online banks that offer this service, such as Chase Bank or BlueVine.

Step 5: Obtain a business phone and website

When it comes to extending credit, lenders use various criteria. For example, a business phone line with 411 directory assistance can be helpful because lenders feel like you’re a legitimate business and this poses less risk to them. You can read more about the best business phone service to pick one that works for your business here. 

A business website is not only a representation of your brand, but it also provides all interested parties with information about your business. This includes information about your domain-branded email address and physical address, how long you’ve been in business (in years), etc. Lenders use this information to audit the data on credit applications to determine whether or not you are worthy of approval for a loan.

Step 6: Pay on time

Lenders want to be sure that they will get their money’s worth, and potential business partners desire to know that you’re a reliable person. Your business should have a goal to make all payments on time (or early) in order to help avoid the impression of financial stress on your business credit profile. Failure to pay creditors can lead them to submit negative reports about your company, which could damage its reputation. A history of delays or defaults may also cause another company not to invest in your startup – this could lead to a loss for both parties involved.

Installment arrangements are a type of debt repayment plan that allows you to pay down your debts over a certain amount of time. By doing this, you improve your credit history and get better credit ratings. This is best done for people with small-business debt, but can also help maintain good credit ratings if you don’t have a significant amount of debt.

By working with your lender to establish this arrangement, you can get a prearranged repayment plan that will help improve your credit score. This is an amazing way to boost your credit rating because it could show lenders that you are serious about paying off your debts.

Step 7: Get a business credit card

A business credit card is one of the essential steps for building business credit. Using a business credit card is a vital step that you should be considering while thinking about how to start business credit and grow your company without reapplying for new loans when extra cash flow is needed.

It is often necessary to have some qualifications in order to apply for a business credit card. For example, some banks ask the applicants to be in business for more than two years.

Business credit cards may offer more helpful features and rewards than personal credit cards. This is because a business card is meant to be used for business purposes, rather than just for personal use. For example, many businesses have exclusive membership benefits that are not available on personal credit cards. Additionally, many businesses have specific reward programs that are more beneficial to them than the rewards offered by individual credit cards.

Step 8: Ask your vendors to report payments

By opening accounts with vendors that report payments to the business credit bureaus, you can build your business’s credit. This will help you get more credible ratings and higher interest rates on your loans.

The best way to ensure your payments are reported is to ask for them. If they don’t report them, you can open accounts with new vendors after verifying that they will report your payments.

Small businesses can often take advantage of trade credit when it comes to financing. They don’t have to pay back the money they borrow as soon as the product or service is delivered, and they make on-time payments so that their customers know they are taking care of their business!

A new business may not have prior bank loans to refer to when applying for credit, but their payment experiences with vendors can serve much the same purpose and reflect a good payment history. A record of responsible financial behavior can work in your favor.

Step 9: Keep a check on your business credit score 

Keeping up with your business credit reports and checking your FICO score is a necessary part of monitoring and maintaining good credit in today’s economy. It’s recommended that you become acquainted with the different credit reporting agencies, so you can use them to pull your business credit report.

The main agency for credit reporting in any business is Dun & Bradstreet. Getting an account set up with Dun & Bradstreet is easier than you might think. It doesn’t cost anything, and it’s not as complicated as it sounds. This means that you can start building credit with your vendors and other creditors right away! 

Businesses should maintain a good credit rating by regularly checking their company’s scores and ratings with Dun & Bradstreet’s CreditBuilder™ Plus. If they want to improve or protect their credit rating for free they can subscribe to CreditSignal® External Website. This website provides alerts when some of their Dun & Bradstreet credit scores and ratings change.

Outsourcing your business credit monitoring task is a good way to free up time and focus on other important tasks. A business credit monitoring service will help you monitor your business credit reports and provide valuable consultations and insights to help build better personal credit.

Conclusion 

The first step is always to ask how to start business credit. It is not easy but it is not impossible either. It takes time and effort to build your business credit score and ratings. Responsible business owners should work to establish and maintain reputable scores in order to help put their best foot forward when accessing a lender or potential business partner’s credit report.

Thanks to artificial intelligence, businesses are able to improve their credit score by the minute. AI is also helping businesses assess their creditworthiness and making it easier for them to get loans. AI credit assessment can help companies by speeding up the assessment process, eliminating any human bias in the evaluation, and providing better data for lending decisions.

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Posted by Mark Dalio
Mark is a serial entrepreneur, investor, and tech expert who has failed many times but still manages to succeed in the long run. He is now an author, speaker and mentor on a mission to help other entrepreneurs.
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