When starting a business, it’s important to establish good credit to help your company grow and succeed. However, many entrepreneurs make the mistake of using their personal credit to finance their business. This can put their personal finances at risk and limit their company’s growth potential.
In this article, Net 30 accounts discuss how to build business credit without using personal credit.
How to Build Business Credit Without Using Personal Credit
1. Incorporate your business
The first step in building business credit is choosing the right business. Consider forming a limited liability company (LLC) or corporation to separate your personal and business finances. This can help protect your personal credit score in case of any business debt or financial setbacks.
When you incorporate your business, you do not have to use your personal name or social security number to get a loan. As a result, you are not personally liable for the debts of the company. The company name can also be used to take out credit.
2. Obtain a Federal Tax ID Number
Once you’ve established your business structure, obtaining a federal tax identification number (TIN) is an important step in working with business credit builder. This unique identifier will be used to open business bank accounts and apply for business credit. Don’t forget to obtain a state tax ID number, licenses, and permits required for your industry and location in addition to an EIN from the IRS when building your business credit profile.
3. Open a Business Bank Account
Next, open a business bank account in your company’s name. Use this account to pay business expenses and deposit revenue. Be sure to keep personal and business finances separate to build strong credit history.
4. Get a Free DUNS Number
It is crucial to acquire a DUNS number in order to build business credit without using personal credit. DUNS stands for Data Universal Numbering System. It identifies your business and reveals its creditworthiness through a unique nine-digit number assigned by Dun & Bradstreet. If you are applying for credit or establishing trade credit with a lender, supplier, or other business partner, you will most likely need a DUNS number. After filling out the online application with your business information, you will receive your DUNS number within a few business days.
5. Apply for Vendor Credit
Vendor credit is a type of credit that allows you to purchase goods or services from a vendor and pay for them at a later date. This can be a great way to build business credit without using personal credit. Apply for vendor credit with suppliers and vendors you already work with.
6. Apply for Business Credit Cards
Business credit cards are another way to build credit without using personal credit. Apply for a business credit card in your company’s name and use it responsibly to make purchases and pay bills.
7. Establish Trade Credit
Trade credit is similar to vendor credit, but it’s typically extended by businesses that you have an ongoing relationship with. This can include suppliers, wholesalers, and manufacturers. Establishing trade credit can help you build a strong credit history and increase your company’s purchasing power.
8. Regularly monitoring changes in your business credit reports
Regularly monitoring changes to your business credit reports is crucial for maintaining a healthy credit profile for your business. By monitoring your credit reports, you can catch inaccuracies and errors that could negatively impact your business credit score and creditworthiness. Additionally, you can identify any negative changes in your credit reports and take corrective action before they affect your ability to obtain credit or favorable terms with suppliers and partners. It’s recommended to check your business credit reports at least once a year, or more frequently if you’re actively seeking financing or partnerships.
9. Keep building your personal credit
Building your personal credit is essential, even if you’re focused on building business credit. Your personal credit history can impact your ability to obtain financing, secure favorable terms, and build trust with lenders and suppliers. By making timely payments, keeping your credit utilization low, and monitoring your credit reports, you can build a strong personal credit history that can benefit your business as well. Additionally, having good personal credit can make it easier to secure personal loans or credit cards that you may need to support your business.