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Give Your Business A Little Credit

March 6, 2009

You recently started your own business and you can’t wait to get a piece of the American Pie. There are so many things to focus on, including buying business assets. You’ve heard about business credit and now is the perfect time to establish it. Thus, you open a business credit card (Visa, Mastercard, Amex, etc). You believe you are well on your way. Unfortunately you need to think again.

Opening a small business credit card does nothing but add more debt to your personal credit history. Remember, you have to give your personal information (i.e., your social security number) to obtain the credit card because you are, in essence, giving the credit card company a personal guarantee. You may also be lowering your own personal credit score, because you are increasing the number of inquiries to your credit history.

Instead, business credit is based on the financial information and history of your company. It has nothing to do with your personal credit. Also, business credit scores range from 0 to 100, with 75 or more being a good rating. The following is a list of tips for establishing and maintaining business credit:

1. Operate your business through a limited liability company (LLC) or S corporation? Setting up a formal business as opposed to a sole proprietorship allows you to build business credit that’s separate from your personal credit.

2. Set up your company with one of the business credit agencies – Dun & Bradstreet, Experian Business, Equifax Business or Business Credit USA. For example, you can get a Dun & Bradstreet number for approxiamtely $500 and you will need to provide comprehensive information on your business, including: company background, operational information, business owners and financial statement information.

3. Be in Compliance. Make sure you have obtained, and keep current with, all required business licenses and filings.

4. Maintain financial information and a business plan. Lenders will often require this when deciding to grant credit.

5. When making purchases for the business, ask the vendor if they are willing to extend credit, and if they will report your payment history to one of the business credit bureaus. Just make sure they don’t use your personal credit information in deciding whether or not they should extend your business credit.


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