Business credit is essential in building a brand, as it helps to separate your business expenses from your personal finances. Additionally, using personal credit means you are fully liable for all business expenses, whereas business credit allows some leeway and has no impact on your personal credit. Below are five steps in obtaining and building business credit as a boss:
1. Obtain an EIN
An Employer Identification Number (EIN), or Tax ID Number, is necessary in applying for a business credit card in that it is how the federal government identifies your business. To apply for an EIN, you can visit https://irs.taxid-usa.com and complete the necessary information. Registering through the IRS is the only way to obtain an EIN, and it is entirely free.
2. Apply for a Business Credit Card
There are numerous business credit cards available that serve different purposes. For example, there are cards that offer low interest rates, cash-back, travel miles, and more. As a boss, you should research which cards will benefit you and your business the most. Once you select and apply for a business credit card, you can start paying for business expenses. Your business credit card will report to credit bureaus and is the simplest way to build your business credit. (Some of our favorites are: AMEX , Chase, and Navy Federal).
3. Open a Business Checking Account
Opening a business checking account allows you to further separate your personal and business expenses. You should use this account to pay the expenses incurred onto your business credit card. It is important to note that you have to open a business checking account if your business is registered as an LLC.
4. Acquire a DUNS Number
A Data Universal Numbering System (DUNS) Number is how Dun & Bradstreet, the largest business credit reporting bureau, identifies your business and reports your business credit score. Furthermore, lenders and potential business partners will reference your DUNS Number to understand the reliability and stability of your business. To apply for a DUNS Number, you can visit https://dnb.com and fill out the necessary steps. There is no charge in applying for a DUNS Number.
5. Ask for Credit Terms
If you purchase products from vendors, you should consider asking for a credit term. A credit term is an agreement between you and the vendor on a credit limit. The credit term indicates when an invoice or bill is to be paid, as well as any interest or late payment fees.
Vendors can document and report credit terms, which aids in building your business credit score if you pay each invoice or bill on time.
The key in building your business credit is smart spending and paying off expenses in a timely manner. With consistency, your business credit can open more opportunities for growth.
See our recommended video below to learn more about business credit:
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