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If you are one of many Americans with poor credit, business credit may seem very difficult and complicated to establish. Well, by comparison it certainly can be, but the rewards of a strong business credit profile are even greater than the rewards of good personal credit (and certainly the rewards of poor credit).
Business credit is established by the registration of a business with one of the business credit reporting bureaus (Dun & Bradstreet and Experian are the two most common). You will have to first incorporate (which will require some help from your attorney) or form an LLC to separate your business from your proprietorship. Then you will need to submit your letters of incorporation to the IRS for an EIN, which is the equivalent of a social security number for tax purposes. Your business will also need a dedicated phone line, bank account and some other state and federal documents so that your business is eligible for the requirements of the credit reporting agencies, and then you can set up an account.
Your business credit score, which is called a Paydex score, is a little different from the Fair Isaac score with which you are most likely familiar. The Paydex score is based on a scale of 0-100, with 75 being excellent. The Paydex score is based partially on creditworthiness as judged by the repayment of loans in a timely manner, and can be built similarly to a personal credit score by buying things with a business credit card and paying them off, but it is also based largely around the profitability and long-term stability of the business itself. These are two very large factors that comprise the bulk of the weight of the Paydex score. Even if you are making timely payments, if your business is not coming up in the black, you will still have poor credit.
Business credit is an incredibly useful tool, and when it is backed with a strong business, it can create availability for financing that could never exist with mere personal credit. The biggest and most significant loans made by the banking industry are to businesses, and having a solid business credit score is absolutely essential to keeping your balances in the black and your life in the green.
