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Module 4: Building Credit

Establishing business credit

Business credit reports help lenders, vendors, suppliers and other creditors determine whether to work with your business and extend credit. A good business credit history might give you a competitive advantage.

For example:

Lenders may use the information on your business credit report as part of their decision to approve and set the terms of financing.

Suppliers and shipping companies review your business’ credit history when deciding whether they will allow you to defer payments and on what terms.

Customers can verify if your company is a legal and reputable entity when it is listed with a business credit reporting agency.

Insurance companies may use business credit report information to help determine the risk level of your business; the higher the risk, the higher the price of your commercial insurance policies.

Procurement officers may evaluate your ability to execute government contracts based on your business credit report and other factors.

Remember, many business credit reports are available to the public. A strong business credit report can increase your company‘s business prospects and build trust.

Getting started

To start the process of building a credit history for a business –

    • Obtain an Employer Identification Number (EIN) from the Internal Revenue Service. You may need an EIN to do business with different entities.
    • If you have open credit accounts or trade credit for your business, find out if you already have a business credit history by searching for your company name on the websites of each of the business credit reporting agencies. If your business is listed, request a report to see what information has been reported and ensure that everything is accurate.
    • If your business does not have a listing with the business credit reporting agencies, ask your lenders, suppliers, and vendors if they will start reporting to the business credit reporting agencies, or consider establishing relationships with those you know already.
    • Once you have records established at one or more of the business credit reporting agencies, you can build your business credit history by updating or correcting your information, including figures from your annual financial statements.

Tips for establishing strong business credit

Having good business credit is just as important as having good personal credit. Let’s look at ways you can establish and maintain good credit for your business to increase your chance of getting a loan with favorable terms.

Pay your loans, bills, and taxes on time. A strong payment history shows lenders that your business can be trusted to manage credit well. Paying taxes on time helps you avoid liens or judgments, interest and penalties. Late payments can indicate that a business is having cash flow issues.

Make sure your business is visible. Lenders, customers and other companies want to be assured that you are known and trusted in the community. You become visible by having an Employer Identification Number (EIN), phone number, legal address and digital presence that appear in your report.

Maintain good relationships with suppliers and vendors. Having a good track record of paying other businesses that you work with on-time will strengthen your business credit history.

Keep personal and business finances separate.

  • Avoid using your personal assets and finances to support your business. Do not comingle business and personal finances.
  • Seek advice from professionals such as insurance agents, accountants, and lawyers to limit personal liability for your business activity.
  • Obtain credit accounts, when needed, in the name of your business.

Monitor your personal and business credit histories. Know what is being reported to consumer and business credit reporting agencies and dispute anything inaccurate.