Building a Business Credit Report Protects Your Personal Credit

Starting up a small business
requires a lot of capital. In
order to meet those capital
demands, entrepreneurs will
often use their own funds plus
borrowed money in the form of
credit cards or home equity
lines of credit. While these
types of financing may be
necessary to get the business
off the ground, small business
owners should establish a
business credit profile as
quickly as possible to save their
personal credit scores from
damage.
Beyond just the risk of credit
injury if the business fails,
using personal loans to provide
working capital can easily pull
down one’s personal credit
score. This is because part of a
credit rating is based on how
many open and available lines
of credit a consumer has. This
average consumer has 11 credit
obligations at any one time –
typically 7 credit cards and 4
installment loans. But a
business owner may have
double those averages because
half of her credit obligations
are for the business.
Unfortunately, they are not
separated by the credit
reporting agencies and it all
reflects on the personal score,
bring it down. The solution is
to establish a business credit
profile.
Company owners can start by
registering their firms with the
major business credit reporting
agencies: Dun & Bradstreet,
Experian Business, Equifax
Business and Business Credit
USA. In order to register,
businesses must first have a
federal tax identification
number from the IRS.
Maintaining a separate
business and personal credit
report is also easier when a
company is incorporated or an
LLC. This lessens the liability to
the personal score.
Once registered, the most
important part of building a
business credit profile is to ask
all trade partners to report any
relevant credit transactions. No
businesses are required to send
in information so sometimes
business owners have to do
their own footwork, making
sure others are reporting data
that could build their history.
And of course, keeping up a
high business credit score
involves making timely
payments and keeping debt-to-
available credit ratios low. But
separating the business and
personal credit scores will
remove some of the stress from
keeping a business fully
financed.