The idea of building your business credit can seem intimidating. But it doesn’t have to be! Getting business loans for bad credit can be challenging, but it isn’t impossible. With this guide, you’ll learn how to build your business credit, including the steps you need to take and the things you should avoid doing.
Understand What Business Credit Is
Business credit is a number assigned to you by lenders and other companies who have your information on file. Their credit score is generated from your business credit report information that they buy from one of three leading reporting agencies: Experian, Equifax, and TransUnion. You’ll also see it as an affiliative score or personal financial record (PFR).
Experts at Lantern by SoFi say, “For personal credit scores, FICO® Scores below 669 are generally considered either fair or bad. VantageScore, another scoring model used by lenders, considers scores between 500 and 600 poor, and scores between 300 and 499 very poor.”
Understand Your Credit
Your credit score is comprised of dozens of factors, including:
- How long have you been at your current job?
- How many accounts have you opened in the past few years?
Get an EIN
An EIN is a unique nine-digit number that identifies your business. It’s used to file taxes and other government forms, and you’ll need one to open up a bank account or even get a business credit card.
Getting an EIN can initially seem intimidating, but it’s pretty easy. Know that you’ll need some paperwork to prove your existence as an actual company.
Open a Business Bank Account
Your business bank account is a must-have. It would be best if you had your business bank account separate from your accounts to prove that you’re serious about running a business and keeping records of all transactions. A simple way to start is by opening an online checking account through your local credit union or community bank.
Apply for Your State Tax ID Number
The state tax ID number is required for all business transactions, including getting a credit card or loan. The IRS has no jurisdiction over this process; it’s strictly a function of the state agency in which your business operates.
You’ll need to apply through your state’s revenue department, which will likely be listed on the government website for that particular state. For example, some states have websites where you can apply online, but others only allow in-person applications.
Register Your Business with Local, State and Federal Government Agencies
The next step is registering your business with the state, city and federal governments. This process may seem foreign to you, but it’s pretty easy. First, you’ll need to fill out some paperwork at your state capital’s Department of State offices. Registering with each city and county will also be necessary, depending on where you live. You can usually get these forms online or at any government office near where you live.
Open a Business Credit Card
Opening a business credit card is another good way to build your business credit. You must use the card only for business expenses, such as furniture or office supplies, and you should pay it off each month in full. Use this card for small purchases ($500 or less) until you get your personal credit score high enough that lenders will approve you for bigger loans.
Building your business credit is difficult, but it is possible. With these tips in mind, you’ll be able to make a plan that works for your business and get on the right track towards building good credit.