How to Start Building Business Credit

There are four basic steps to building a strong business credit portfolio. Following these steps will ensure that your business credit is established separate from your personal credit, thus reducing your personal liability within your own company.

Things You'll Need

• Incorporation Paperwork
• EIN Number
• DNB Number
• Corporate Bank Account

Instructions

1. Step One:Coporate Structure
   Choosing the correct corporate structure is critical to the success of your business and will determine your ability to successfully build corporate credit under your business name. The most important thing to know is you must be incorporated or filed as an LLC to build business credit. Creditors will not give an unincoporated business the time of day, much less a line of credit. Most business owners will select one of four different types of corporate structures: LLC, C-Corp, S-Corp, or Non-Profit.
   LLC's: are one of the newest types of incorporations. It is a hybrid between a corporation and a limited partnership. I suggest this type of filing if your company is going to have 20 or less employees. LLC's are not taxed at the entity level. Instead, the taxes are passed through to the individual shareholders and are paid on the individual shareholder's tax returns under Capital Gains. This makes paying your corporate taxes very easy. LLC's also offer protection from liabilty just like corporations. For ease of use, costs, taxes, and liabilty, you will be well served with this type of corporate structure.
   C-Corps: are corporations that are a separate legal entity from the business owner(s) and thus provide full liability protection. They do, however, face double taxation; once at the corporate level and again through the shareholders on dividends paid to them by the corporation. This double-taxation can often be offset with additional by-laws written into the Articles of Incorporation.
   S-Corps: are corporations that have a special tax designation from the IRS. S-Corps are not taxed at the corporate level. Like LLC's, the taxes are passed through to the individual shareholders and are paid by the shareholders on their individual tax returns under Capital Gains.
   Non-Profits: are corporations and thus a sepaprte legal entity providing full liability protection of assets. Most non-profits will also have a 501(C)3 rating from the IRS granting them a tax-exempt status. A church would be a good example of a non-Profit with a 501(C)3 rating.
   Regardless of which corporate structure you select, becoming an incorporated company brings legitimacy in the eyes of the creditors!

2. Registering With the Credit Bureaus:
   The second step in building corporate credit is to register your company with the top credit bureaus used in business credit. The top 3 credit bureaus used in business credit are Dun & Bradstreet, Business Experian, and Business Equifax. 99% of creditors will use one of these three credit bureaus to determine if, and how much credit they will extend to your company. Dun & Bradstreet is the top business credit bureau, so it is best to set up your profile with them first. They will assign a DNB (DUNS) number for your business and a password so that you can assess your credit profile. After you have entered your business information and set up your business credit profile, you will repeat these steps for Experian and Equifax. You will need to have your incorporation paperwork and EIN number from the IRS to complete your credit profiles at the credit bureaus.

3. Assessing Credit Reports:
   After you have successfully set up your credit profiles at the top 3 credit bureaus, you will need to pull your initial credit reports. Although your credit profiles will be initially blank, check your credit reports for accuracy and update any missing or wrong information. If your profiles are set up correctly, and the information is correct, you can proceed with setting up accounts with the creditors.

4. Obtaining Business Credit:
   Now that you are incorporated, and have active credit profiles that are true and accurate, you can now begin opening accounts under the business name. NEVER allow your personal information to be used when applying for accounts. Using your personal information (date of birth, Social Security Number, etc) is the same legally as giving a personal guarantee on that account. Personal guarantees equate to personal credit. Any account set up using your personal credit information will be reported to your personal credit profile and not your business credit profile. It will also increase your debt-to-income ratio and lower your FICO score. You will also be personally liable for that debt even if your business fails for any reason. Apply for accounts using your EIN number and/or DNB number instead of using your Social Security number. This will ensure your accounts are set up as true corporate credit, established solely under the business name.
   Start with small accounts such as Net-30 vendors. Once you have 2 Net-30 accounts reporting to your credit profiles, you can advance to low-end revolving credit lines. (To have your initial credit score issued by Dun & Bradstreet, you will need to have 4-5 accounts reporting with a two month payment history on each account. This credit score is called your PAYDEX score and ranges from 0-100. An 80 PAYDEX score is equivalent to a 750 FICO score used in personal credit). We suggest you obtain 4 low-end revolving credit lines before advancing to your mid-range revolving creditors. Low-end revolving creditors are accounts ranging from $1500- $2500. Repeat the same process with your mid-range revolving creditors, obtaining four mid-range accounts. Mid-range creditors are accounts ranging from $2500-$7000. Once you have completed your mid-range revolving creditors, you can advance to your bank-level credit card issuers such as MasterCard, VISA, Discover, and American Express business acounts. Using this formaula will ensure each creditor is extending your business the highest credit limit possible. After you have completed all four tiers of credit, your company will now be in line for bank-level financing and will also qualify for most leasing programs nationwide.
   To find out more on building corporate credit without using your personal credit, visit our website at www.PlatinumCorporateCredit.com
   We will be happy to assist you in getting the business credit your company needs to succe

Tips & Warnings

• Do not use your personal credit information when applying for business credit

• Do not apply for more than 2 accounts in any 30 day period. Excessive inquiries will result in your credit profile being flagged at the credit bureaus

• Pay all accounts on time or early, NO LATE PAYMENTS!

• You can not use a P.O.Box, UPS dropbox, or a virtual address as your business address and obtain business credit. You CAN use your home address as your business address and still obtain business credit!

• You can only have ONE business operating out of a given address. Multiple businesses operating out of the same address are hugh red flags for the creditors

• Your business phone must be a land line and not a cell phone, and must be registered with 411 Directory Assistance under your business name.

• Use a valid business email account, not a personal email account such as Yahoo, MSN, Hotmail, etc.

• It is helpful to also own your own domain name and have a web page or website.

Resources

• Building Business Credit