Establishing Business Credit:
An Important Step For Small Business Success
Establishing business credit begins by separating your personal
credit from your business credit. That way if your business fails,
your personal credit doesn't have to be destroyed too. In the reverse
if you do not separate your personal credit from your business credit
and your personal credit takes a down turn, then your business credit
may also be negatively impacted.
To separate your personal credit
from your business credit there are several steps you must take.
First you need to incorporate or form an LLC. Your business must
be an entity unto itself in order to build business credit. Otherwise
you be "in business",
but you are not "a business".
By definition sole proprietors and partnerships are personally liable
for everything the business does, including all its debts. Therefore
it is impossible to separate personal from business credit under
those forms of business ownership.
Next, you must have a Federal EIN and open a separate bank account
under the exact legal name of the business. Then, you must obtain
all necessary business licenses, permits, etc. that are required
and your business must have a separate phone line that is listed
in the phone directory in the exact business legal name.
Now, you must open a business credit file with all three business
credit reporting agencies. The next step is to obtain five vendors
and/or suppliers that will extend a small amount of credit to your
business and report your payment histories to the agencies.
Then, you will need to obtain three business credit cards that are
not linked in any way to you personally and that report to the business
credit reporting agencies. And then you must pay all your bills on
time.
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