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How to Build Business Credit by Consumer Change

Establishing business credit is a critical step for any new business. Establishing business credit is going to help you in many ways. For one, it is going to help you maintain a credit history that is separate from your personal one. It will also help you experience the business benefits that you will achieve through having good business credit. And lastly, it is going to help demonstrate separation between the owner and the business entity.

Build business credit with a reliable company and grow fast
Build business credit with a reliable company and grow fast

Why Separate Credit History?

You are going to want to have yourself separated from your businesses credit history because by having them separate, you will be able to minimize the negative effects that one might have on the other one. For instance, if you are dealing with some financial mistakes on your personal credit history, your score and history shouldn’t be impacted on the business end of things if you have established clear separation of the two.

Why Separate Business And Owners?

Unless you plan on operating your business as a sole proprietorship or partnership, you are going to need to demonstrate that the owners are separate from the business. The biggest benefit of establishing a limited liability company is that you will receive more protection of your personal assets in case something happens with your business. You will only be able to keep this type of protection in place if you can consistently show clear separation of your personal credit and your business credit.

Now that we have discussed a bunch of reasons as to why you would want to ensure that you work at building business credit that is separate from your personal credit, we will go into further detail on how to exactly do so.

Establishing Business Credit Practical Steps:

1. Incorporate Your Business.

The first thing that you are going to need to do is incorporate your business. With sole proprietorships and partnerships, your business is going to be legally in the same name as the owner. Therefore, you will not be entitled to establish separation from the business and it’s owners. By incorporating a business as a Limited Liability Corporation, you are going to be able to effectively create a business that is separate from the owners.

2. Obtain A Federal Tax Identification Number:

The next step in the process is going to be to obtain a Federal Tax Identification Number. This number is essential going to act as the social security number for your business. It is required for tax filings and is also required in order to open a business bank account in the actual name of the corporation. Also, a lot of businesses might need to utilize an identification number in order to pay vendors for services provided.

3. Open Business Bank Account.

The next step involves opening a business bank account. You should open the business banking account in the corporations name, not your personal name. You will want to be sure that you pay the financial transactions from your corporation from this business bank account. If you happen to use a business credit card for any transaction, you will want to be sure that you also pay your business credit card bills from your actual business checking account. That way, you can establish separation.

4. Establish a Business Phone Number.

Another thing that you are going to need to do is establish a phone number for your business. This is important. You can either use a regular phone service or even a voice over Internet type of service.

5. Open A Business Credit File:

You will also want to open a business credit file with each of the major 3 business reporting agencies including; Experian, TransUnion, and Equifax.

6. Get Business Credit Cards.

Another thing that you are going to want to do eventually is get business credit cards. It is very important that you work to get business credit cards because they are going to allow you to establish credit. They will also help establish a clear separation from you and your business by paying everything related to your business through your business credit card. It is best to never buy business items or pay for business expenses through your personal credit card. Ideally, you are going to want to get at least 2 different business credit cards to start with. This will give you a lot of room for improving your credit score.

7. Establish A Line Of Credit With Suppliers.

If you have suppliers in your business industry, you will want to be sure that you work to establish a line of credit with different companies in your industry. You should aim to work with at least five different suppliers and/or vendors in your industry in order to really establish a good credit history. You will use these lines of credit when you need new product and/or supplies. You will also want to ask them to report your payment history to different credit reporting agencies for the best possible results.

8. Pay Your Bills On Time.

This is an incredibly important step. It is 100% essential that you work to pay your bills on time – every time. Late payments can severely negatively impact your overall business’ credit score. The best way to avoid this is to always remember to pay your business credit cards on time. If you have trouble remembering to pay a lot, you might want to set up Autopay for your credit cards as it can help tremendously since you will not have to constantly remember to pay manually.

Additional Tips to Build Your Corporate Credit:

1. Make Your Payments On Time.

As we noted previously, this is going to be one of the most important factors in determining whether or not your business has good credit. You will need to ensure that you pay your bills on time regularly. You should aim to ensure that 100% of your bills are paid on time. Do not miss any payments. While late payments that happen to be late by a couple of days or so will likely remain unreported, it is still better to avoid this type of problem by paying them all on time.

2. Keep Debt Low.

At some time throughout your business tenure, you may need to take out a loan. If you do decide to take out a loan, you nee to be sure that you are going to be able to keep the debt as low as possible. This will ultimately keep your credit utilization lower, which can increase your overall credit score. It does this because you become less of a risk factor to credit agencies this way. By keeping your debt low, you are showing that you are not a risk in any way.

3. Use Credit.

You should work to ensure that you open many different types of credit accounts. However, it is important to actually use these accounts in order to really benefit from having them. Credit must be used in order to really see your score rise. Just remember that the credit that you are using is real money and that it must all be paid back on time. This should keep you more responsible with your money.

4. Check Your Business Credit Report.

It is important to continue to check your business credit report. Like your personal credit report, it is not likely to be 100% accurate. However, it should give you a general idea on what your credit score is hovering around. This can give you a good idea on what you need to do or avoid doing in order to fix it. By staying on top of your businesses credit score, you are going to be able to be proactive towards keeping your score high.

5. Keep Your Business And Personal Credit Separate.

This is the most important tip that you can get. The fact is, you need to ensure that your personal credit is separated effectively from your business credit. This is because you never know what is going to happen with either of your credit scores. By having them separated, you will be able to effectively avoid having them negatively impact one another. It is always a bad idea to have your business and your personal credit history linked. This is going to leave you unprotected in the future.

6. Keep Applying.

If you have already applied for different lines of credit including credit cards, you are going to want to continue to apply throughout the year. The truth is, you can never really have too many credit cards. While you should never use them all to their fullest capacity, it is important to have different lines of credit open with different banks and different companies. This is going to give you the best chance of raising your credit score as long as you are responsible and work to pay your bills off on time. If you sit there and do not apply for new credit cards or other forms of credit, your score will likely remain stagnant. The truth is, the credit agencies love to see businesses that are active. Make yours active and show them that you can and will pay your bills on time – every time.

Benefits Of Having Good Business Credit:

There are a ton of different benefits for having good business credit. Below we will discuss some of the biggest benefits of having good credit for your business.

Benefits Of Having Good Credit:

1. Payment Terms.

One of the biggest benefits comes from getting better payment terms from vendors and suppliers. By getting better terms, you might be able to reduce your overall costs or reduce upfront costs. Either way, both of these benefits are huge for any type of business. However, it is particular important for those that are running small or medium sized businesses because it may mean the difference between stocking more products and being able to sell more products at once.

2. Reducing The Need To Prepay.

Let’s face it, a lot of businesses simply do not have the necessary cash flow in order to be able to pre pay for all of their goods. Therefore, it is essential that you establish good credit if you are one of these companies. The fact is, even if you can afford to prepay for all of your goods, you are likely going to lose sales or money as a result because you will need to store the inventory and sit on it.

3. Better Interest Rates.

As a business, it is essential to be able to obtain good interest rates for loans and other needs. This can mean the difference between staying in business or going out of business for some. It is also important to be able to get good rates in case you ever decide to expand. A lot of people are going to be unwilling or unable to really come out of pocket to pay for a lot of business expenses. Therefore, by getting better rates, you will be able to obtain a loan at a reasonable interest rate which will not negatively impact you or your business. In fact, it can positively impact you and your business by giving you more to work with.

As you can see, there are tons of different ways in which you can build business credit. It is essential that you work to apply all of the tips that were discussed in this article for the best results. Always remember, keep your business entity separated from your personal credit. This is going to protect both; you and your business. Always try to pay your bills on time – no matter what. If you need to, you can schedule automatic payments to be withdrawn from your businesses bank account. Also, remember to keep a close eye on your credit. By keeping a good eye on it, you will be able to effectively react to problems that might arise. It is always best to respond immediately to problems with your credit history.