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One of the things you are going to want to do when starting up your first business is apply for a business credit card. However, applying for a business credit card is a bit more tricky than applying for a personal credit card. In order to understand the difference, you first have to understand how the business credit system works.
Business credit, unlike personal credit, is not tied to an individual person, but rather a fictional business entity like an LLC or a C-corp. It is based on the Paydex score by Dun & Bradstreet, which is very similar to the Fair Isaac score, but is based on a scale of 0-100, with 75 and above being considered excellent. Like personal credit, business credit is strongly influenced by your ability to pay bills on time, but unlike personal credit it puts a substantial amount of weight on the business’ profitability and longevity. It takes a little bit longer to establish, but when established it can easily qualify you for some of the best loans available.
Before you can apply for a business credit card, you must first separate your business credit from your personal credit. This is a multi-step process. First you will want to consult the aid of a legal professional and form a business entity. The business entity can then apply for an Employer Identification Number (EIN), which is like a social security number when you file your business’ taxes. You then have to establish a phone line and a bank account in the business’ name and it would be wise to start some merchant trade lines with the business as well.
Now you are ready to apply for a business credit card. Business credit cards are very similar to personal credit cards, with similar benefits packages, however they usually have higher interest rates and higher credit limits. They are also much harder to apply for when starting out; of the 500 or so business credit cards, only about 60 will be willing to extend credit to start up businesses. Be sure that the credit cards that you are applying for do not ask for your personal credit, and read all of the fine print.
Once this is done, you are on your way to building business credit! Fortunately this is a pretty rapid process; with some sound practices, you can easily build up a respectable credit score within twelve months.
