How to Establish and Maintain Good Business Credit

Maintaining good business credit and ensuring your business credit report is accurate are critical as they impact your ability to obtain credit from banks and vendors. They also influence decisions by other companies about whether to do business with you. Here are some tips on how to establish business credit and ensure your business credit report is accurate and up to date.

How to Establish Business Credit

To establish business credit, you first need to establish the business as a separate legal entity. You can do this by incorporating the business or forming a limited liability company (LLC). If you don’t establish the business as a separate entity, for example by operating it as a general partnership or a sole proprietorship, and you comingle personal and business finances, creditors can come after you personally if the business is liable for debts or damages. Companies that create business credit reports track new business filings, so they will notice when the business is established as a legal entity and will start tracking its payment history, and public filings.

Once the business is established, apply to the IRS for a federal employer identification number (EIN).  This number is required so you can file your taxes and it will also be used by the business credit report companies to identify your business. A business bank account should also be established to pay bills and receive payments. This will help build your business credit profile. Consider applying for a business credit card as well.

Make sure to pay all your creditors on time—or even early. Your payment history with vendors, lenders, and credit issuers is the most important factor when business credit bureaus calculate your business credit score. If you pay late that will be reflected in your credit report and your credit score.

Monitor Your Business Credit Report

It is critical to make sure your report is accurate and up to date because it influences decisions by other companies about whether to do business with you. Business credit reports are the preferred tool for most credit managers because they consolidate all the critical information companies need to assess credit risk. The companies that sell business credit reports create them by collecting, verifying, and analyzing information from numerous sources, including public records and filings, as well as trade references. The reports also contain scores that rate a business’s creditworthiness and predict its payment behavior.

Contact us to learn more about how you can access and review your own business credit report as well as how you can incorporate business credit reports into your credit decisioning, marketing, and supplier review processes.