Every Business Needs to Know How to Open a Business Credit File
The necessity to establish business credit apart from your personal credit isn’t always easy to see on the front end. This is especially true if your personal credit is sufficient. The need is there, however. Opening a separate credit file for your business is something that needs to take place during process of actually starting the business. You need to know how to open a business credit file.
It isn’t always that easy however. If you already have an established business and are just now considering this, that’s okay. You can still make it happen. Follow a few simple steps and you will be way on your way.
The Importance of Business Credit
If your business connects to your personal credit, then that will be the credit that takes the hit if the business goes south. No one wants to think about that happening. But it happens every day, and you need to have a safety net in place. Having separate credit for your business is part of that net.
On the flip side, if you run into personal financial hard ship and your personal credit suffers, you don’t want your business to suffer as well. Your business could be the very thing that helps you out of a personal financial hardship. If it has its own credit that is not affected by your personal credit, that will be much easier to make happen.
What is the Difference Between Business Credit and Personal Credit?
While it might seem obvious, the lines can become blurred more often than you might think. This is especially true with sole proprietor businesses and partnerships.
You have bills that you pay for you home and life, such as utilities and personal credit cards. All these payments affect your credit score. If you pay all your business expenses from your personal accounts, then those payments will affect your personal credit score as well.
Even if you pay all of your bills on time, your credit utilization is going to be high, and if it gets over 25 to 30%, that can negatively affect your credit score.
If you have a business credit file, those payments made for your business will be on your business credit. This will result in your business having its own credit score, making it easier for you to finance business growth and expansion.
How to Open a Business Credit File
It is important to be proactive about business credit. You need to start the process, because while it may be true that “no news is good news,” the opposite is true of credit. No credit is bad credit.
Specifically, if Equifax or Experian have all of your business information but no record of credit, they will show a bad score.
There are a couple of ways to go about this. The best is to establish your business separately and let your business credit build on its own as creditors report payments. Yet, it is possible to expedite the process by opening a file on your own and self-reporting.
How to Open a Business Credit File: Getting Started
It is important to make sure your business finances are separate from your personal finances in every way. This is true whether you are going to open a file and self-report (covered next) or let your business credit build from scratch. This means:
- Incorporate, or at least operate under a DBA. This is a “doing business as” name that your business goes by. This is a way you can have a separate name for your business without formally incorporating.
- You have separate bank accounts for your business
- Your business has its own phone number and address and you list that information in the major directories
How to Open a Business Credit File: Self-reporting
Dun& Bradstreet and Equifax each allow self-reporting of payments. If you have vendors that will not report payments, and you cannot change vendors, this is may be an option.
With D&B, you will need to apply for a DUNS number. While it is free, they will try to sell you other products in the process. If these products will be useful to you, by all means consider them, but know that they are not necessary to open your business credit file. In fact, many of the products and services they offer can be had for free from other companies.
You should also be aware that if are not a government contractor and do not buy the services they sell, it could take longer, 30 days or more, to get your DUNS.
If you choose to self-report with Equifax, you will have to meet certain minimum requirements. For financial businesses, this means you must have at least of 500 vendors to report, and all other businesses must have at least 2,000 vendors.
Experian does not allow self-reporting, but rather relies on verified information from third parties.
How to Open a Business Credit File: Making the Call
If you have the time or get started soon enough, it is better to ensure verified third-party vendors are going to report your on-time payments to at least one of the three credit agencies. Self-reporting should not be the first choice. How does this happen?
Check with Vendors
If you have vendors already, find out if they report your payments to the credit agencies. If they do, great! But if not, ask them to. If they refuse, look for other vendors.
While it isn’t always possible to switch vendors, it is worth it to try.
You can also try starter vendors such as Marathon.
Check out starter vendor Marathon. Marathon Petroleum Company provides transportation fuels, asphalt, and specialty products throughout the United States. Their comprehensive product line supports commercial, industrial, and retail operations. This card reports to Dun & Bradstreet, Experian, and Equifax. Before applying for multiple accounts with WEX Fleet cards, make sure to have enough time in between applying so they don’t red-flag your account for fraud.
To qualify, you need:
• Entity in good standing with Secretary of State
• EIN number with IRS
• Business address- matching everywhere.
• D-U-N-S number
• Business License- if applicable
• Business Bank account
• Business phone number listed on 411
Your SSN is required for informational purposes. If concerned they will pull your personal credit, talk to their credit department before applying. You can give a $500 deposit instead of using a personal guarantee, if in business less than a year. Apply online. Terms are Net 15.
Get a Business Credit Card
Almost all credit card companies report to the credit agencies. Use your business name and contact information and apply for a business credit card. You may have to give a little early on when it comes to credit limit and interest rate if you do not yet have a business credit score.
Once you build your credit file a bit though, you can ask for a limit increase or apply for a card with more favorable terms.
Remember to look for cards with other perks as well. A few examples of the business credit cards and the perks they offer include:
- Capital One Spark Cash for Business– unlimited 2% cash back on all purchases, which can add up to a lot over the course of a year. In addition, you get a 0% introductory APR and, if you spend $4,500 in the first 3 months, you qualify for a $500 cash sign up bonus.
- Chase Ink Business Unlimited– unlimited 1.5% cash back on all purchases, and you can earn a $500 cash bonus here too. There is no annual fee, and you get 0% on balance transfers and purchases for 12 months.
- Ink Business Cash Credit Card– 0% APR for 12 months and 5% cash back on purchases made in certain business categories, as well as a $500 sign up bonus.
Ask Utilities to Report Payments
Most utilities do not report payments to credit agencies, and they don’t have to. Some of them will report if you ask, however. The worst they can say is no. And if they will report and you pay on time, it can only help you.
Consider a Business Loan
Before you have an established credit file, it may be difficult to get approval for a traditional business loan. Many alternative lenders have a less stringent approval process. Consider getting a small business loan and make payments to help bulk up your credit file.
How to Open a Business Credit File: The Last Step
Once you have your business credit file opened and payments begin to post, make your payments on time. The rest of this means nothing if you do not make your payments consistently on time.
Then, monitor the report. Get a copy at least annually, and it may be best to get one every six months in the beginning. Make certain that all of the information is correct. And report any mistakes you find. We can help you monitor business credit at Experian and D&B for a lot less than it would cost at the CRAs.
How to Open a Business Credit File: You Can Successfully Manage Your Business Credit
Whether you choose to open a business credit file and self-report, you let your business credit build naturally, or you use a combination of both, the key is to be proactive.
If you do not do the necessary work, your business credit will naturally mingle with your personal credit, which we have already established is not ideal.
Making sure you open a business credit file by separating your business name and accounts from your personal name and accounts is the first step. After that, you have to make your payments on time and review your credit report periodically to ensure all the information is correct.
It isn’t difficult but neglecting any piece of the puzzle renders the big picture useless. No credit, bad credit, and a credit report full of mistakes all have the same effect, and it isn’t good. It takes all the parts working together for the business machine to function properly, and business credit is one part that you cannot ignore. It needs to be cared for, checked, and well-maintained through the life of your business.
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