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At the point an individual with a social security number accepts their first job or applies for their first credit card, a credit profile is started with the personal credit reporting agencies . This profile, otherwise known as a credit report, is added to with every credit inquiry, credit application submitted, change of address and job change. The information is typically reported to the credit bureaus by those who are issuing credit. Eventually, the credit report becomes a statement of an individual's ability to pay back a debt.

In some cases, the same is true for businesses. When a business issues another business credit, it's referred to as trade credit. Trade, or business, credit is the single largest source of lending in the world.

Information about trade credit transactions is gathered by the business credit bureaus to create your business credit report using your business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN), which you get from the IRS. The business credit bureaus use this compiled data to generate a report about your company's business credit transactions. In many cases, those issuing credit to you will rely on your business credit report to determine if they want to grant you credit and how much credit they'll give.

Let's start by talking about your business credit score. Business credit scores range on a scale from 0 to 100 with 75 or more considered an excellent rating. Personal credit scores, on the other hand, range from 300 to 850 with a score of 680 or higher considered excellent.

It's important to note that there are many factors that affect a credit score; it's based on more than just whether you pay your bills on time. Your score can be affected by the amount of available credit you have on bank lines of credit and credit cards, the length of time you've had a credit profile, the number of inquiries made on your credit profile and more.

The mistake many business owners make is using their personal information to apply for business credit, leases and loans. By doing so, they risk having a lower personal credit score.

Why is that? The average consumer credit report gets just one inquiry per year and has 11 credit obligations, typically broken down as 7 credit cards and 4 installment loans. Business owners are not your average consumer, however, because they carry both personal and business credit. This typically doubles the number of inquiries made to their personal credit profile and the number of credit obligations they carry at any given time, all of which negatively impact their personal credit score. And because business inquiries and personal inquiries aren't separated on their personal credit report, the scores, again, is negatively affected. At the same time, by using their personal credit history to get business credit, they're not able to build their business score, which could help them attain critical business credit in the future.

The key to establishing a business credit profile and score is to find companies that will establish credit for your business without using your personal credit information and then report the payment experiences to the business credit bureaus. By reporting the information to the proper agencies, they'll help you establish your business credit profile.

The following are the basic steps you need to take to establish your business credit profile and score:

1. Form a corporation or LLC to operate your business under and obtain an FIN or EIN from the IRS. You can apply for an EIN number at the IRS website.

We are suggesting you form a corporation or LLC as opposed to structuring your business as a sole proprietorship or partnership because with a sole proprietorship or partnership, your personal credit information could be included on your business credit report--and vice-versa. In addition, as a sole proprietor or partner in a partnership, you're personally liable for the debts of the business and all your personal assets are at risk in the event of litigation.

Corporations and LLCs, on the other hand, afford business owners liability protection, and you can build a business credit profile that's separate from your personal debts. You may be able to apply for credit under your business's name and obtain credit without a personal credit check or guarantee if the credit grantor will do so--and it's been our experience that often all you have to do is ask.

2. Register your company with the business credit bureaus.

3. Comply with the business credit market requirements. It's extremely important for businesses to meet all the requirements of the credit market in order to ensure a higher likelihood of credit approval. In fact, not being in compliance with the credit market can raise red flags with both credit bureaus and grantors. The red flags include such simple things as not having a business license or a phone line. Most businesses will not grant credit to another business that hasn't taken the steps to set the company up with the proper licenses and local, state and federal requirements. 

4. Prepare financial statements and a professional business plan.These documents are often required by many credit grantors.

5. Find companies willing to grant credit to your business without a personal credit check or guarantee.

When a company grants your business credit, be certain they report the payment experiences you have with them to the business credit bureau to help build your business credit report and a financial foundation for your company.

6. Manage your debt so you don't fall into trouble making your payments, which will negatively affect your credit score.

7. Make monthly payments to credit grantors to keep your business credit profile active.

At some point, almost every business needs some type of credit. To avoid having to use your personal credit history or guarantees and to obtain the best possible terms, start the steps necessary to build a business credit profile now before you really need it.

Just Starting a Business... Then building business credit is perfect for you. It's critical for newer businesses to have access to credit and capital. With our knowledge and expertise you will be able to start out on the right foot and give your new business every financial advantage. Simply contact us to get started.

Have an Existing Business... Even if you've been in business for 10 years you may not have a business credit profile! Whether you do or not, our system will instantly show you the current status of your business credit profile and then quickly walk you through the next steps to either establish, optimize or fix it.

Buying a Business or Franchise... If you are buying a business you should first form a new entity for the purchase. Our legal formations partner can help! Then you'll want the new business to have strong business credit scores so that once your sale closes, you are ready to jump right in.