Do you want to start a business, but don’t know how to establish good credit for it? Establishing good credit for your new business is one of the most important things you will do as an entrepreneur.
The process is a little different from the way you build your personal credit report. Good business credit can make your daily operations more manageable. It can also help you accomplish your professional goals and dreams. Use these tips to start establishing good credit for your small business:
Start on the right foot
Learning how to establish good credit for your business means that you need to start on the right foot. This means that you need to set up a LLC or corporation as opposed to a sole proprietorship.
In addition, you need to obtain a federal Employee Identification Number (EIN). Opening bank accounts in your official business name, setting up a phone line and listing it will also make the process of establishing good credit easier.
Keep business and personal credit separate
The number one rule of business is to keep business and personal credit separate. No matter how difficult it might be to build good business credit at first, resist the temptation to put your own good name on the line for the sake of a business endeavor.
Initially, your personal credit score might impact your ability to start establishing good credit for your business. After a period of about two years, however, the merit of your business will be set, and your personal name should be out of the picture.
Obtain at least one credit card in your business name
One of the easiest ways to start establishing good credit is with a basic credit card. Getting the first card may be a little tricky, but it will play an integral role in your credit report.
Be sure to get a card that reports to the three main credit bureaus. Most business owners will wind up using 2-3 credit cards, as this actually helps to strengthen the business credit report.
Build relationships with vendors and suppliers
Besides a credit card, another way to build good business credit is by working with vendors and suppliers who will extend a line of credit to you. This serves two purposes. First, vendors and suppliers can serve as references for you if you want to obtain a larger line of credit. Second, some vendors and suppliers will report to the credit bureaus, further establishing good credit for your business.
Just like your personal credit affects your daily life, good business credit is critical for the success of your company. Building credit is an ongoing process that takes time and effort. Exercise discretion when opening lines of credit and be sure to make your monthly payments right on time. You should also check your business credit report regularly, at least 1-2 times per year.