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How to build business credit

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    If you're new to owning a business, you may not have heard of business credit before. Like personal credit, it's built over time and can help you secure financing for your business. Whether you're a new business owner or an entrepreneur still perfecting your idea, it may be a good idea to get familiar with building business credit. But first, what exactly is business credit?

    What is business credit?

    Business credit refers to the creditworthiness of a business and its ability to manage and repay debt. So how does it work? Vendors, suppliers or creditors can report back to a business credit bureau about your business activity and accounts. This may include information like your credit limit, the amount of debt you have and whether you're paying your bills on time. This information is combined to create your business credit score.

    You may be wondering what you can do with business credit once you've begun to establish it. Vendors and creditors may use it to determine a variety of things, such as:

    • Credit limits
    • Eligibility or rates on loans
    • Insurance premiums
    • Eligibility for contracts with outside organizations
    • Creditworthiness in the eyes of investors

    How to check business credit score

    If you aren't sure whether your business has a credit score yet, there are a few ways to check. There are three major business credit bureaus:

    • Dun & Bradstreet
    • Experian®
    • Equifax®

    Unlike personal credit scores, business credit bureaus aren't obligated to provide free access to your score, so you may have to pay a fee. There are also specialty business credit reports available, so it's up to you to decide which, or how many, scores you want to check. It's normal for your score to vary slightly across credit bureaus.

    If you go to check your business credit and find you don't have any, your next question might be: How does a business get credit?

    How to build business credit

    The first step to building business credit is to legally register your business. This allows your future vendors and creditors to report your activity back to the business credit bureaus. After this, the general steps to build business credit include:

    1. Getting a free employer identification number (EIN) from the Internal Revenue Service (IRS).
    2. Opening a business bank account using your business' legally registered name.
    3. Getting a dedicated business phone number and registering it in your legal business name.
    4. Registering with Dun & Bradstreet to receive a free D-U-N-S number. This number will identify the physical location of your business.

    Once you've taken care of the logistical side of things, you may also want to apply for a business credit card and ensure you're working with vendors that report payments.

    Business credit cards

    Applying for a business credit card has a few different benefits that you may want to take advantage of. Firstly, the lender will likely report your payments to the credit bureaus, which may help build your business credit.

    Additionally, some business credit cards may offer benefits and rewards programs. Depending on the card, this could include anything from cell phone protection and travel insurance to cash back or travel points.

    Vendors who report payments

    If you're still establishing your business, you may want to find vendors that will report your payments to the credit bureaus. Consistent payments that are either early or on time will help you build credit over time.

    If you already have vendors that you work with, you might try reaching out to them to ensure they report to the credit bureaus. If they don't or aren't willing to start, you may want to consider opening accounts with new vendors who will.

    Benefits of having good business credit

    Because business credit helps lenders assess creditworthiness and risk when deciding if they should lend your business money, having good credit can prove to be an asset for a business. Some of the potential benefits include:

    • Opening your business up to funding that can ultimately help it grow.
    • Potentially helping you receive better loan terms and interest rates.
    • Protecting your personal finances by keeping your business financial
    • debts and obligations off your personal credit report.
    • Potentially receiving better terms from suppliers.

    In summary

    So, what is business credit? It's your business' creditworthiness, determined by factors like debt obligations and consistent payments. If you work on building up your business credit, you may find it benefits your business in the long term with thing like lower interest rates and more opportunities for funding growth.

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