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How to build business credit the right way

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How to build a commercial credit header image

Learning to build business credit involves some basic concepts and a little time. Once you know the steps, you can establish a credit that can help your business and protect your personal credit.

What is commercial credit?

Commercial credit is a record of the financial value of your business that helps an entity determine if it wants to lend money or do business together. It is similar to a personal credit score, but instead of being linked to your social security number, it is linked to your Employer Identification Number (EIN).

Several agencies produce a commercial credit score that ranges from 0 to 100. In general, businesses should aim for a score of 80 or more. Factors such as your outstanding balances, years in the business, the size of your business, payment history and bankruptcies affect your score.

Commercial credit helps you increase the value of your business for lenders, investors and other companies. With good commercial credit, you can acquire better financing, increase the value of your company and keep your personal credit safe.

Creating business credit takes time and a few simple steps. By establishing business credit, you and your business will prosper.

Here’s how to generate business credit:

1. Enter your business

Register your business to become a legal entity. By incorporating it, you can start establishing a positive business history. Your commercial credit score will be different from your personal score, which will facilitate the request for a commercial loan or credit card.

Your business will seem more legitimate, which can help when applying for credit. The process of incorporating your business has several steps. You will have to decide What kind of business to create, create a name, write and present the articles of incorporation and pay the fee.

A company that is a separate legal entity, such as a corporation or a limited liability company (LLC), is more likely to obtain a small business loan than a sole proprietor or a company.

Image of common commercial entities

2. Obtain a federal tax
Identification number

A federal tax identification number or Employer Identification Number (EIN) It is supplied by the Internal Revenue Service and identifies your business. An EIN is used to separate your commercial transactions from your individual transactions, such as opening a commercial bank account, an important step in generating your first commercial credit report.

An EIN may also be necessary when requesting a commercial credit card. Getting an EIN is simple and free. Go to the Internal Revenue Service website and complete the online application form.

3. Open a business bank
Account

When opening a commercial bank account, you can show your company's income and expenses to a lender. It also creates a working relationship with your bank.

This can be useful if you think you could apply for a loan in the future. In addition, the ability to produce bank statements will give more credibility to the eyes of the lenders.

Many banks that offer personal accounts also offer bank accounts for businesses. Compare prices to find good introductory offers and low rates.

4. Get a commercial phone
Number

Like your address, your telephone number is part of your business identity. Having one helps you look more professional and reliable in the eyes of lenders and credit agencies.

A commercial telephone number can be a local, free or virtual number that is used remotely wherever you are. You can also buy a second smartphone for your work communications, but it is not necessary.

5. Open a business
Credit file

A commercial credit file is essential if you are going to show lenders that you can borrow responsibly. A commercial credit file is useful for applying for a loan and also for obtaining insurance or a lease.

Decisions influenced by the image of your commercial credit file

The healthier your business credit report and credit score, the more options you will have to borrow. To generate a credit file, you must place your business on the map, establish it as a financial entity and open a commercial bank account.

The three commercial credit bureaus, Experian, Equifax and Dun & Bradstreet, charge a fee for obtaining their commercial credit file. Monthly subscription options are available if you plan to check your file frequently.

A less expensive option is to register with a credit monitoring service, such as Nav, Creditsafe.com or Credit Signal, which sometimes offer free reports and plans.

To increase your chances of getting credit, you must also request a D-U-N-S® Number. This is a globally recognized number that is used to locate a company's Dun & Bradstreet business credit file.

Some companies only work with you if you have this number. A DUNS® number can be easily obtained through Dun & Bradstreet website.

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