Steps to Establishing Business Credit

Many business owners don't know that there is such a thing as business credit--a kind of credit that your business has that is separate from your personal credit. Using corporate credit is a great idea because financing business debt on your personal credit can lower your credit score and may make it impossible or much more difficult for you to finance a car or buy a home in the future. Even those who know about the possibility of unsecured business lines of credit based on corporate credit aren't sure how or where to get started when trying to establish a good credit history. This quick overview will give you an idea of what you'll need to do. First, the format of your business is really important when you're looking to establish business credit. It's a good idea to set your business up as a corporation or an LLC, because both of these business forms shield you personally from any of the debts of the business. A sole proprietorship or partnership is looked at as indistinct from the person who runs it, so you can't establish separate business credit in the format. Next, you need to register your company with the business credit bureaus. Just as there are companies that keep records for personal credit, there are reporting services for business credit. Make sure that you're in compliance with all federal, state and local laws regarding your business. If you need a license to do business in your state, make sure you get one. Also, you'll want some basic business documents including financial statements and a business plan, which many banks require before they'll consider giving you a loan. Then you'll need to find companies that will give you business credit without doing a personal credit check. Make sure that the business that is giving you corporate credit reports their payment experiences with the credit reporting agencies--it's not required that they do so. If your activity isn't being reported, it doesn't do you any good when it comes to building credit. Finally, you need to make sure that you manage your money and your debt well so that you don't fall behind on payments. You don't have to pay off your corporate credit card every single month, but don't build up so much debt that you have trouble making your payments. Also, make sure you're making monthly payments so that your business credit profile stays active. This is important for establishing credit in the long term because it shows that you are responsible and always pay your bills. Establishing corporate credit does take time, but it is worth it when you know that you can finance your business without risking your personal credit rating.