X
This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013.
There are 10 references cited in this article, which can be found at the bottom of the page.
This article has been viewed 35,738 times.
A credit file is the raw data that credit reporting agencies collect and use to generate an individual or a business's credit report. Your credit report contains identifying information such as your name and contact information and a detailed list of your debts. If you have poor personal credit, there is no legal way for you to create a new personal credit file for yourself. However, if you are planning to start your own business, your can generate a business credit file that is separate from your personal credit file. This requires that you start a business, choose a corporate structure, comply with IRS requirements and eventually establish a business credit line. If you maintain a healthy business credit line, your business will be able to borrow money and establish lines of credit.
Steps
Part 1
Part 1 of 3:
Creating a Business Credit File That is Separate From Your Personal File
Start a business. If you were contemplating starting a business but feared that your personal credit history would make it impossible, there are ways to structure your business so that your business credit file and personal credit file are treated separately.- By creating a business credit file, an individual can legally create an alternate credit file.
- By having a separate business credit file, you can minimize the effect that your personal credit file has on your ability to conduct business. For example, if you establish a healthy credit report for your business, the business will be able to take out loans, buy goods and services on credit, and establish a separate bank account and credit card.[1]
Choose a business structure. When choosing a corporate structure for your small business, you need to choose a structure that creates a separate business entity. Generally, this means that you need to form either a corporation or a limited liability company. Both of these business structures legally separate the business from any one individual that works at or runs the company.[2]
Obtain a Federal Employer Identification Number (EIN). Every corporation or LLC must obtain an EIN. This number is like a social security number for your business and is used to file your federal business taxes, open a bank account in the name of your business, and may even be required by vendors in order for you to pay them for their services.[3]- You can apply for your EIN online at the IRS' website.[4]
Acquire a DUNS Number. In addition to obtaining an EIN, your business must also acquire a DUNS Number. A DUNS number is a nine-digit business identifying number. By registering for a DUNS number, you establish a business credit file and your business will be listed in Dun & Bradstreet's business information directory.[5] You can register for a DUNS number online.- When registering for your number, you will have to provide the following information: your legal name; the name and address of your business headquarters; any other organization names used by your business; the mailing address if different from the physical or business address; and a business telephone number, contact name and title. You may also need to provide the number of employees at your organization.[6]
Advertisement
-Step-1.jpg)
Part 2
Part 2 of 3:
Establishing Business Credit
Set up a dedicated business telephone number. It is important that you set up a business telephone number that is separate from your personal phone number. The phone number can be linked to a landline or a cell phone. By setting up a separate number, you are demonstrating that the business is a separate entity, and helping to establish business credit, since you will pay for the phone bill with your business checking account.[7]
Open a business bank account. Once you have created your business entity and filed all necessary paperwork with the state, you should open a checking account in the legal name of the business. Once the account is open and you have deposited funds for the start-up costs of your business, you should use this bank account for any financial transactions related to the business. This includes paying the balance of your business credit card (discussed below). By establishing a business credit account, you have begun creating transactions that can be tracked by a credit-reporting agency.[8]
Obtain a business credit card. Once you have established a separate legal entity, set up a checking account and a phone line, you should apply for a business credit card. By establishing a line of credit, you are creating another entry on your business credit file. Additionally, by paying your bills in a timely manner, you are creating a positive credit report.- When selecting a business credit card, make sure to ask the credit card company whether they report to the credit reporting agencies. If they do not, choose a credit card company that does..[9]
Establish a line of credit with vendors or suppliers. Once your business is underway, you want to try and establish a line of credit with your vendors or suppliers. Many suppliers extend lines of credit in order to give businesses the opportunity to finance purchases in order to preserve the company's cash flow. You can obtain items such as office supplies, computers or even marketing materials that are financed over a period of 30 to 60 days.[10]- You should try to establish lines of credit with at least five vendors.
- When asking a supplier to extend you a line of credit, you should also ask the supplier to report your payment history to the credit-reporting agencies.[11]
Advertisement
Part 3
Part 3 of 3:
Maintaining a Healthy Credit File
Pay your bills on time. While it may seem obvious, you must pay your bills on time in order to maintain a healthy credit file. Late payments are recorded in your file, just as they are with personal credit. Late payments can negatively impact your credit rating.[12]
Review your business credit report regularly. Your business credit report is how many businesses, lenders, and insurance companies will judge whether to conduct business with you. It is important that you regularly review your business credit report to make sure that there are no mistakes listed that could negatively impact your rating. If you find a mistake, you should immediately contact the credit reporting agency and have the issue resolved.[13]
Guard against fraud. While most people hear about personal identity theft, American businesses suffer billions of dollars annually from fraud. By regularly checking your business credit report, being careful with your company's financial information, and checking the credit report of the companies you do business with, you can reduce your company's risk of becoming a victim of fraud.[14]
Grow your business. By paying your bills on time, showing your company's ability to successfully work with a number of vendors, and manage its credit lines, your business is building a healthy credit file. Your credit report is one of the most important ways to grow your business as it tells other companies and customers that your business is financially stable and fiscally responsible. By continuing to expand your business, where feasible, and successfully managing your credit, your newly created credit file will allow your business to access new lenders, better insurance rates, and additional customers. [15]Advertisement
Expert Q&A
Ask a Question
200 characters left
Include your email address to get a message when this question is answered.
SubmitAdvertisement
Tips
- Before you apply for business credit, make sure that your corporate filings are completed and your business records are up to date. This will allow the creditors to more quickly verify and hopefully approve your credit application.[16]Thanks
Advertisement
Warnings
- Avoid any company that offers to give you a brand new personal credit file. This has been an ongoing scam that the Federal Trade Commission has been addressing for more than eight years. The FTC has targeted numerous “credit repair businesses” that falsely offered consumers new and legally obtained personal credit files. There is no legal way to obtain a new and separate personal credit file to replace your existing file.[17]Thanks
Advertisement
References
- ↑ http://www.streetdirectory.com/travel_guide/166607/credit_matters/find_out_the_truth_about_creating_an_alternate_credit_file.html; http://www.bizfilings.com/learn/small-business-credit.aspx
- ↑ http://www.bizfilings.com/learn/small-business-credit.aspx
- ↑ http://www.bizfilings.com/learn/small-business-credit.aspx
- ↑ https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-to-Apply-for-an-EIN.
- ↑ https://www.sba.gov/blogs/how-build-business-credit-your-start; http://www.dnb.com/get-a-duns-number.html
- ↑ https://www.sba.gov/content/getting-d-u-n-s-number
- ↑ http://www.bizfilings.com/learn/small-business-credit.aspx
- ↑ http://www.bizfilings.com/learn/small-business-credit.aspx
- ↑ http://www.experian.com/small-business/establish-business-credit.jsp; http://www.bizfilings.com/learn/small-business-credit.aspx
- ↑ https://www.sba.gov/blogs/how-build-business-credit-your-start
- ↑ http://www.streetdirectory.com/travel_guide/166607/credit_matters/find_out_the_truth_about_creating_an_alternate_credit_file.html; https://www.sba.gov/blogs/how-build-business-credit-your-start
- ↑ http://www.bizfilings.com/learn/small-business-credit.aspx
- ↑ http://www.experian.ie/assets/about-us/white-papers/simplestepstocreditscore.pdf
- ↑ http://www.experian.ie/assets/about-us/white-papers/simplestepstocreditscore.pdf
- ↑ http://www.experian.ie/assets/about-us/white-papers/simplestepstocreditscore.pdf
- ↑ https://www.sba.gov/blogs/how-build-business-credit-your-start
- ↑ http://www.streetdirectory.com/travel_guide/166607/credit_matters/find_out_the_truth_about_creating_an_alternate_credit_file.html
About this article
Clinton M. Sandvick, JD, PhD
Doctor of Law, University of Wisconsin-Madison
This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013. This article has been viewed 35,738 times.
Co-authors: 14
Updated: May 25, 2021
Views: 35,738
Thanks to all authors for creating a page that has been read 35,738 times.
Did this article help you?
⚠️ Disclaimer:
Content from Wiki How English language website. Text is available under the Creative Commons Attribution-Share Alike License; additional terms may apply.
Wiki How does not encourage the violation of any laws, and cannot be responsible for any violations of such laws, should you link to this domain, or use, reproduce, or republish the information contained herein.
- - A few of these subjects are frequently censored by educational, governmental, corporate, parental and other filtering schemes.
- - Some articles may contain names, images, artworks or descriptions of events that some cultures restrict access to
- - Please note: Wiki How does not give you opinion about the law, or advice about medical. If you need specific advice (for example, medical, legal, financial or risk management), please seek a professional who is licensed or knowledgeable in that area.
- - Readers should not judge the importance of topics based on their coverage on Wiki How, nor think a topic is important just because it is the subject of a Wiki article.
Advertisement
