How to establish business credit

Your business credit score can be as important as your personal credit score. Creditors and suppliers are increasingly using business credit reports and scores to make lending and credit decisions.

Establishing a business credit profile and building a score may seem like a daunting process—especially if your business is new. But it’s not.

There are several steps you can take to begin building business credit:

Incorporate or form an LLC (Limited Liability Company) to ensure your company is seen as a separate business entity

Make sure you choose the best business structure for your company from the very beginning. It’s possible to change it later, but it can be a costly mistake. Whatever structure you choose, the key is to keep your business and its finances separate from your own personal ones.

Forming a separate business entity, such as an LLC or sole proprietorship, can protect your personal assets from business liabilities, significantly reducing personal financial risks. It can also simplify tax reporting and can offer tax benefits, but it requires adherence to more complex legal and financial regulations. Check with an attorney or financial advisor if you need help deciding what’s the best fit for your business.

Obtain a federal Employer Identification Number

An Employer Identification Number (EIN) is a unique nine-digit number assigned by the IRS to businesses operating in the United States for identification purposes. It's an absolute must for businesses of all sizes, including sole proprietors, as it is required for tax reporting, opening a business bank account, and hiring employees. 

It's important to understand that an EIN is different from a Social Security Number (SSN).  While your SSN is used for individual identification and tax purposes, an EIN is specifically for business-related activities, ensuring a clear separation between personal and business finances and obligations.

To obtain an EIN, business owners can apply online at the official IRS website, which offers a straightforward and free application process. 

Open business bank accounts in your legal business name

Maintaining a business bank account that is totally separate from your personal account not only helps you be organized by keeping business and personal transactions separate, it also simplifies tax preparation, potentially maximizing tax deductions related to your business expenses. 

Various types of business bank accounts, including checking accounts, savings accounts, and merchant services accounts, cater to different needs. For instance, checking accounts facilitate daily operations, savings accounts help in managing profits, and merchant services accounts are essential for processing customer payments. 

To select the best type of account(s) and the best financial institution for your business, do research online, but also consider talking to local banks in your area. If you’re happy with the bank where you have your personal accounts, see if they offer business services. Having a good relationship with a bank can help in the future if you decide to apply for loans, too. 

Set up a dedicated business phone line in your business name and make sure it's listed

Establishing a dedicated business phone line, whether a cell phone or landline, and ensuring it's listed boosts your professional image and enhances communication with clients. This not only strengthens your credibility but also improves visibility in directories and online, aiding in marketing efforts.

It helps identify and legitimize your business, which can mean your business credit is established more quickly. Finally, having a separate work phone helps you maintain boundaries between your personal and professional life, contributing to work-life balance.

Once you've completed the steps above, you can request business credit in your company name. Your business trades are then reported to Experian, creating a robust business credit report that gives lenders and suppliers quality information about your company. This improves your ability to obtain loans, increase credit lines, and secure more favorable credit terms.

Wondering if you already have a business credit report? Want to know your score now? Check your Experian business credit report today to find out. Start by searching for your business with our free look-up tool.

If your business has recently been formed or is unable to be found after conducting a search, you can submit a request to establish your business profile. You will be alerted by Experian when the report is available.