07/02/13

The Importance of Building Business Credit

Building-CreditYour ability to build a positive business credit history reflects your past payment habits and future borrowing potential. This essential business component gives you the capacity to grow as a company and remain competitive in your industry.

Begin building your credit history by taking steps to formally set up your business, opening business accounts and slowly transitioning to making payments with credit and taking loans when necessary.

Taking the First Steps

Establishing a business credit history requires defining your business, which separates your personal and business finances and identifies your role in the marketing community.

  1. Incorporate your business as a separate legal entity like a corporation or limited liability company.
  2. Use the Internal Revenue Service’s online website to set up an Employer Identification Number (EIN).
  3. Register with Dun & Bradstreet Corporation, a major business credit bureau, to receive a DUNS number. You will be added to a database of millions of businesses and your credit history can then be tracked and publicly viewed.
  4. Open a business checking and business savings account using your newly acquired EIN and DUNS numbers.
  5. Apply for a secured credit card to use for smaller purchases. Secured credit cards require a deposit to open and come with a low credit limit. While they cannot be used to make major purchases, they are available to people who have either a short or adverse credit history.

Each of these steps secures your financial standing as a business and is a foundation from which to build. Once you are armed with your incorporated name, EIN, DUNS number and business accounts, you can begin making purchases and demonstrating your creditworthiness to vendors, investors, lenders, business partners and consumers.

As your business prospers from accumulating credit, stay consistent in making payments and not borrowing more than you are capable of repaying. After months of properly making payments, request to increase the limit on your unsecured credit card. Even if you do not have immediate plans to use the funds, this will increase your credit utilization ratio which positively affects your business credit score.

Reaping the Benefits

As your business prospers from accumulating credit, stay consistent in making payments and not borrowing more than you are capable of repaying. After months of properly making payments, request to increase the limit on your unsecured credit card. Even if you do not have immediate plans to use the funds, this will increase your credit utilization ratio which positively affects your business credit score.

Your credit building endeavor may offer the following benefits:

Being a successful company is not just about having high quality products and or services, but also proving that you are financially reliable.

Alanna-RitchieAlanna Ritchie is a content writer for Debt.org, where she writes about personal finance and little smart ways to spend (and save) money. Alanna has an English degree from Rollins College.

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