Home Building business credit How to Establish Business Credit From Scratch

How to Establish Business Credit From Scratch

A new business has no credit file of its own. Here are the steps to build one, in order, from forming the entity to watching the file for errors.

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A new business starts with no credit history of its own. Business credit is a record of how a company pays its bills, kept by business credit bureaus. It is separate from the owner's personal credit. Who looks at this record? Equifax says lenders, insurers, service providers and even customers often check a business credit profile first. They do this before they decide to work with a company. Here is how to establish business credit, step by step. For a fuller picture of what this record is, see our page on business credit.

Step 1: Form your business entity with the state

The IRS says to form your corporation or LLC through the secretary of state before you apply for an EIN. If you do not, it says, your EIN application may be delayed.

Forming an LLC does not by itself create credit. It creates the entity that credit can attach to. The IRS also notes a rule for some corporations and LLCs. They may need to report their beneficial owners to FinCEN. Those are the people who own or control the company.

Step 2: Get an EIN from the IRS

An Employer Identification Number is a tax ID. It belongs to the business, not to you. The IRS says businesses need one to manage their taxes. You generally need one to hire workers. You also need one to run a partnership or corporation, or to pay sales and excise taxes.

The EIN is not a credit file. People often confuse it with the D-U-N-S Number. Our page on ein vs duns number explains the difference.

Step 3: Get a free D-U-N-S Number

D&B says the D-U-N-S Number is a nine-digit ID used only for businesses. Each one is unique. It lists a business in the Dun & Bradstreet database. That lets others see the business is active. D&B says organizations may use it to judge a business credit profile.

Getting one is free, and D&B says there is never a requirement to buy any product or service to obtain, use, or maintain one. Businesses of many types, from S-Corps to partnerships and LLCs, can get one. Have several locations? D&B says each location should get its own number.

Check first. D&B says you can look up your own number or another company's with the D-U-N-S Lookup tool. Your business may already have one.

Step 4: Learn how to set up a credit file

D&B says a business owner can learn how to set up a credit file if they do not have one. They can also learn how to gain control over their financial reputation, D&B says.

Step 5: Check and monitor your business credit

Per Equifax, the report captures how healthy and how risky a business looks at one moment. Ordering your own report helps you fix errors. It lets you watch your borrowing history and improves your access to funding. Reviewing it is the best way to catch and dispute inaccurate information, Equifax says.

Monitoring also matters for fraud. Equifax says watching your credit file closely helps a business spot errors fast. It also helps catch accounts no one opened. Start with a business credit check, then read our guide on how to check my business credit score.

What to avoid when establishing business credit

Skip anyone who charges you for a D-U-N-S Number. D&B says there is no requirement for a company to have one, and no purchase is ever needed.

How long does it take?

No source gives a fixed timeline, and any promise of one should be met with doubt. The IRS fact fixes one order, entity first and then the EIN.

Keep the file right as it grows. D&B says U.S. private companies can use the D-U-N-S Manager at no cost. They can view their business information and ask for updates. It sends in your changes for review. D&B checks them, then may accept them. Read your file line by line, the way you would read a personal credit report. Equifax says good business credit can help a business negotiate better rates and terms with lenders. It can also strengthen contracts and bids by showing the business is stable.

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