Opening a Business Credit File

If you hope to secure loans for your business and build a trustworthy reputation, it’s wise to establish business credit history separately from your personal credit. One of the most important steps you can take toward this is opening a business credit file.

What is a business credit file?

A business credit file contains key details on your payment history, credit history and credit utilization. Business credit reporting agencies use the information in this file to generate your business credit score, which lenders then use to decide whether they will extend credit to your business.

The three major agencies for business credit reporting are Dun & Bradstreet, Equifax and Experian. Per Kimberly Rotter in U.S. News & World Report, these companies differ somewhat in how they calculate business credit scores. However, each one focuses on helping lenders assess a company’s creditworthiness and risk for seriously delinquent payments.

What should I do before opening a business credit file?

Writing for the U.S. Small Business Administration, Marco Carbajo notes three key actions to take before opening a business credit file. First, consult with an attorney and establish your business as a separate entity from your personal finances. Sole proprietors don’t qualify for business loans, so you’ll want to register as a corporation or a limited liability company. Second, apply with the IRS to get an employer identification number (also known as a federal tax identification number) for your business. Third, check with the reporting agencies to see if your business is already on file with them.

How do I open a business credit file?

You can open a business credit file in a couple of different ways. The first is by simply doing things that establish a record of your business and its credit history. In The Balance Small Business, Justin Pritchard recommends opening a separate business bank account, obtaining a small loan or credit line and working with suppliers that report your payment history to credit agencies. You can also open a file by contacting a credit bureau directly. For example, Carbajo notes that applying for a D-U-N-S Number from Dun & Bradstreet will register your business with that agency.

What’s next?

Once you’ve opened a business credit file, you’ll want to make sure the information it contains is accurate and up to date. Unlike with personal credit reports, you’ll need to pay a small fee to see your business file. It’s a worthwhile expense, though, giving you the opportunity to identify and correct any errors that might be hurting your business’s credit. Often, you can ensure the accuracy of the information in your file by giving it directly to a credit agency in the first place.

You’ll also want to continue following best practices to build your business credit history and boost your credit score. Writing for NerdWallet, Teddy Nykiel recommends responsibly using the credit that’s available to you, dealing with vendors and lenders that report to credit bureaus and, of course, making all your payments early or on time. You’ll also want to avoid court judgments, tax liens and other stumbles that will tarnish your business’s public records and credit score.

Establishing your business’s creditworthiness is crucial to its long-term financial health. Opening and building a credit file will help your business secure the funding — and the trust — that it needs to thrive.