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How to Open a Business Credit File

As a small business owner, your days are probably filled with a lot of responsibilities. Yet amid your hectic daily to-do list, it’s important not to overlook your business credit.

Ready to get the process started? Your business credit journey begins with an open business credit file. 

How to Open a Business Credit File

A business credit file describes the information that a business credit reporting agency maintains about your company in its database. And although the two are closely related, a business credit file isn’t the same as a business credit report. 

Your business credit file may contain a number of important details including:

  • Identifying information about your company
  • Vendor trade references in your company’s name (once you establish them) 
  • Information about vendor trade references, such as payment history, balance, and more 
  • Financial tradelines, such as business loans, leases, and credit cards
  • Public record information such as liens, judgments, and bankruptcies
  • Your business credit scores 

A business credit reporting agency can use the details from your business credit file to create a commercial credit report. 

Then other businesses (i.e., business lenders, suppliers, insurance providers, etc.) can purchase copies of your business credit report and use that information to evaluate your business’ creditworthiness and risk. 

Step 1: Establish a Separate Legal Entity for Your Business. 

The first step in the business-credit building process is establishing a separate business entity. Although there are a number of ways you can register a business, you may want to choose one of the following options when you’re working to build business credit.

  • C-Corporation (C-Corp)
  • S-Corporation (S-Corp)
  • Limited Liability Company (LLC)

In addition to the potential credit-building benefits, there are other reasons why you may want to consider establishing a separate business entity. 

Personal liability protections, valuable business tax breaks, and the ability to easily sell or transfer your company to a third party are just a few of the additional perks you might enjoy. 

Step 2: Request an Employer Identification Number (EIN) from the IRS. 

After you establish a separate business entity, you’ll need to apply for an Employer Identification Number, or EIN, from the IRS. An EIN is important for tax purposes and to help you identify your business to the federal government. 

When you’re ready, you can visit the IRS website to submit an EIN application. There is no cost to apply, and you don’t need to hire someone to file any forms on your behalf.

Step 3: Register for a D-U-N-S® Number from Dun & Bradstreet. 

Dun & Bradstreet is one of the major business credit reporting agencies in the United States. The company, commonly called D&B, uses a unique nine-digit D-U-N-S Number to identify each business in its database. 

You can apply for a free D-U-N-S Number online. On the application, you’ll need to include key details about your business such as: 

  • Legal Business Name
  • Business Address
  • Business Telephone Number
  • Number of Employees
  • Etc.

Once you complete your application (and sometimes an added verification call with D&B), you’ll typically receive your D-U-N-S Number within 30 days or less. 

Step 4: Set Up a Separate Bank Account for Your Business. 

As a business owner, it’s critical to keep your personal and business finances separate. Mixing the two can make both accounting and tax filing far more complicated than necessary. Plus, you might open yourself up to personal liability (known as piercing the corporate veil) when you intermingle business and personal finances. 

The best way to maintain separation between your personal and business funds is to open a business bank account. (Tip: Be sure to set up the account in your legal business name.) When you complete this step, it may also help your company appear more credible from a lender, supplier, investor, or insurance provider’s point of view. 

Step 5: Open Business Tradelines and Pay On Time.

Next, you’ll want to open some commercial tradelines with the potential to help you establish your business credit reports and scores. But rushing out to apply for a business loan probably isn’t your best move here. 

As a company with an open business credit file but no credit history, certain types of accounts will probably be easier to qualify for than others. 

You should aim to establish accounts with lenders and suppliers that report to at least one business credit reporting agency—and more is better. The credit reporting component is a critical part of the credit building process. 

When you’re ready to establish your first credit account, here are a few options to consider. 

Business Credit Cards

If you have a solid personal credit score, a small business credit card might benefit you. If the card issuer reports the account to the business credit bureaus (as many of them do), the account has the potential to help you establish a business credit profile.

Furthermore, a small business credit card offers you another tool to separate your personal and business finances. And if you open a rewards card to pay for regular business expenses, you might earn valuable points, miles, and other perks in return.

When you apply for a small business credit card, the card issuer will most likely check your personal credit report and score as part of the application. Good credit should make your odds of qualifying better here. Bad credit does the opposite. 

You’ll also likely have to provide a personal guarantee agreeing to be held liable for the business’ debt in the event it defaults. Finally, there’s a chance the account might end up on your personal credit reports from the consumer credit bureaus too.

It’s also critical to keep the credit utilization ratio low on your account. (Credit utilization is the relationship between your credit card balance and credit limit.) 

If you run up a high credit utilization ratio it might damage your credit score even if you pay on time. For best results, you’ll want to pay your full statement balance every month. 

Business Credit Builder Loans

Another way you can build commercial credit from scratch is with a business credit builder loan. Even with no previous business financial tradelines, there’s a decent chance your business might qualify for this type of credit account. 

Credit Strong, which is a division of a 5-star rated FDIC insured bank, offers a business credit-builder account that it reports to the major business credit reporting agencies. If you qualify with your business EIN, you can receive an instant credit builder installment account (aka financial tradeline) of up to $10,000 that’s held in a separate business savings account. 

You’ll make payments for up to 120 months, giving you the opportunity to establish some solid payment history as long as you pay on time. You can close the account at any time for free, making it a super flexible tool to build your business credit profile.

You can learn more about Credit Strong Business Credit Builder Accounts here. 

Vendor Accounts

Vendors or suppliers offer a third way to open your first business tradelines. With vendor credit, you may be able to find companies that are willing to provide your company with supplies or services upfront. 

Then, you receive an invoice for those goods or services that you must pay within a certain time period. 

Depending on the terms of the agreement, a vendor may offer you net-30, net-60, or net-90 terms. With net-30 terms, you must pay your invoice within 30 days. Net-60 terms require payment within 60 days, and so forth.

Again, you need to make sure that the vendor will report the tradeline to at least one business credit bureau (and preferably more). 

Otherwise, the arrangement might help your cash flow, but it won’t do anything to beef up your business credit file. The following easy-approval net-30 accounts may be a good place to start your search. 

No matter what type of trade credit you open, remember that the number one key to your success is paying on time. Your business’s creditworthiness will suffer if you pay late. And in some cases, making late payments might damage your personal credit score and report too. 

Step 6: Monitor Your Business Credit Scores and Ratings 

Monitoring your business credit scores and reports is another important habit you need to develop. Just like you keep track of your business bank account, cash flow, and other important metrics, periodically reviewing your business credit information matters too. 

There aren’t many ways to monitor your business credit free of charge. However, Credit Strong and Dun & Bradstreet Credit Signal both offer free tools you can use to access some of your business credit information. 

You can also visit the various commercial credit bureaus online to purchase business credit reports and scores. Prices vary, but may range from $39.95 per credit report up to $1,495 annually

How Long Will It Take to Build Business Credit? 

The length of time it takes you to build business credit depends on several factors. Most business credit reporting agencies will require your company to have a certain number of tradelines in its business credit file before it will qualify for a business credit score. 

  • Dun & Bradstreet: Your business needs at least four trade references in your business credit file to be eligible for a PAYDEX® score. 
  • Experian: Your business needs at least one tradeline and one demographic event (i.e. number of employees, years in business, etc.) to qualify for a business credit report and credit score. 
  • FICO: The FICO® LiquidCredit® Small Business Scoring Service, or FICO® SBSS Score, is based on a combination of your business credit and personal credit reports. You might qualify for a score without established business credit history if your personal credit is up to par. 

Depending on your goals, you can set a pace for establishing business credit that works best for your company. But remember that qualifying for the various business credit scores (PAYDEX Score, Intelliscore Plus, etc.) is just the first step. 

It will take continuous effort every month to earn and keep good business credit scores that can work to your advantage. In the business credit world, on-time payments should be your number one priority. 

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