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How to build business credit

Applying for a federal tax ID and applying for a business bank account are a few steps you can take to start building credit

Summary

If you have strong business credit, it will be easier to get credit for your business, and you’ll have access to better interest rates. That can lower the overall cost of running your business and help you to achieve bigger profits. Here are six steps you can take to improve your business credit.

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Want to make running your business easier in 2020? Establishing business credit or improving on your credit profile is a great way to do that.

If you have strong business credit, it will be easier to get credit if you need it for your business, and you’ll have access to better interest rates. That can lower the overall cost of running your business and help you to achieve bigger profits.

Here are six steps you can take to improve your business credit.

See related:  How to check a small business’s credit report

1. Apply for a federal tax ID

The credit bureaus use this to track your business. You can apply online at the IRS’s website.

2. Open a business bank account

One of the most basic ways to start establishing business credit is to open a bank account in the name of your business and use that account for all of your business deposits and withdrawals. (You will need to bring your federal tax ID with you to open one).

Make sure to handle this account carefully to avoid bounced checks and overdrafts. It will be easier to keep your books and do your taxes if you keep good records.

3. Form a business entity

Setting up an LLC or other business entity, such as an S Corp., can make it easier to establish your business finances as separate from your personal finances.

It is important to get advice from an accountant and an attorney on the right business entity for you. The decision you make can have tax implications – and making the wrong choice can cost you money.

4. Apply for a business credit card

Using a business credit card for all of your business charges will help you to establish business credit. Ideally, pay your balance in full every month, but if you can’t do that, make sure you are not maxing it out. High credit utilization can lower your business’s credit score.

If you have a low credit limit and need to put charges such as airfare and hotel stays for business trips on the card regularly, consider applying for a second card, so you don’t have to max out either of them.

5. Establish trade credit

If you regularly do business with a big box office supply store or hardware store, ask if it offers a line of credit or a store credit card. Use it for your purchases at that store and pay the bill on time.

6. Make sure the major credit bureaus are tracking you

Sometimes it takes a while for the major credit bureaus to track a small business. Use the tools on their sites to see if you are being tracked and if so, to get your business credit report.

Three credit bureaus that may be tracking your business are Dun & Bradstreet, Experian and Equifax. To get tracked by Dun & Bradstreet, you need to apply for a DUNS number.

Building business credit is more of a marathon than a sprint. Start early if you think you will need to apply for substantial credit or a business loan. And make sure you take good care of your personal credit in the meantime.

Typically, you will have to provide a personal guarantee for business credit, so the better your personal credit score, the easier it will be to get the business credit you need.

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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