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Q: I’m thinking about opening a small business. I’m not sure how to start building my business’s credit. How should I do this?
A: Experts recommend first establishing your company as an LLC (Limited Liability Company) or corporation in order to keep your personal and business credit separate. Limited liability companies are more common for small businesses. Though some business owners do prefer to organize a a subchapter-S corporation. An LLC, as its name suggests, provides its owners with some protection from liability. If your business is sued, your personal assets usually cannot be taken away.
For more information about legal structure and tax consequences, we suggest that you consult with an attorney licensed in your state.
As for building credit, I suggest that your next step after forming your company is to get a D-U-N-S number for your business from Dun & Bradstreet.
Dun & Bradstreet, Equifax Business, and Experian Business are the “Big 3” for business, just like Equifax, Experian, and TransUnion are for personal credit scores. Check all of these credit scores from time to time and make sure there are no inaccuracies.
You may also want to check into industry-specific bureaus. Depending on whether or not anyone has reported your financial activity to these bureaus yet and your business size, you may or may not have a credit score at each of these credit reporting agencies.
It always helps to have good relationships with vendors. Make sure you pay all invoices in a timely manner and ask if they report to one of the business credit bureaus.
If they do, you are already building credit. If they don’t, see if you can find a vendor that will. You may have to weigh whether building credit is worth giving up a good vendor relationship.
Other ways to build your business credit would be to open up a bank account, line of credit, or credit card in your business’s name.
When you do receive credit, treat it like your personal credit; don’t use too much if it. Try to keep your use below a third of your credit limit. Build up your company size if you can without overextending yourself.
Don’t ever pay suppliers or minimum payments late.
If you follow all of this advice, you should be well on your way to building up your business credit score.