How to Establish Business Credit
On a micro-level, I wanted to know exactly what the banks, credit unions, insurance companies and credit bureaus DID NOT want me to know about my personal credit. On a macro-level, I wanted to understand businesses credit, so I could avoid mistakes and leverage OPM.
Differences between business credit and personal credit.
As a business owner, I wanted to have a comprehensive understanding of how business credit works. I knew the habits I have been exciting within my life were minimal, but not effective long term solutions to living in the 21st century. I needed to fix my personal credit for good and to establish business credit the right way.
In my personal life over the past 10 years, not having the most ideal credit has cost me thousands of dollars. And as my sister has often told me, I’m a frugal minimalist. I’ve never been a huge credit card spender and I knew how to save money. But I never understood the value of having a credit score 750+ or better, the way that I do now. Operating a business without understanding business credit, or without having corrected the issues with my own personal credit, would be a slow leak to disaster.
It wasn’t until I had a consultation with a FICO Credit auditor, that I learned there was even a thing called “business credit”.
Personal credit is based on the individual, how they manage their money, credit cards, and loans. For the past 7 years, I’ve always conducted business as Daniyel Bingham, so I would have been liable for any of the debts or legalities associated with “doing business as”, a sole-proprietor, who uses his own personal bank accounts for business transactions.
Beauticians, landscapers, real estate agents, personal trainers, electrician and plumbers are all self-employed or sole-proprietor business models, where many business owners merge their personal and business transactions within the same account. This leaves your home money and assets prone to the IRS, clients who feel an injustice, customers who are spiteful, etc.
Co-mingling funds isn’t illegal...
But the internal revenue service categorizes you differently when you don’t separate your personal and business transactions. So many things can go wrong within an economy and the last thing you want to do is have economic hardships within your business, directly affecting your family, house, marriage, or life savings.
What you want to do is build and establish personal and business credit separate from one another. Your personal credit should be under your social security number and your business credit should be under the employer identification number that is associated with your business. All of the debt that a company has is in the companies name and the business is responsible for all debts. It’s in the company name and the credit was looked at through the businesses credit. They may look at my credit as a business owner, but ultimately the decision will be made based on your established business credit.
Establishing business credit for MBNY Media, Inc.
It takes time and I’ve planned this process out over 12 months. Much different than personal credit, which is often a snapshot or indicator of a lifetime of financial habits. The first step to establishing business credit was to form a S-corp (c-corp). You cannot establish business credit as a sole proprietorship or partnership, because you would still be conducting business under your social security number. You must establish either a LLC, C-corp, or S-corp or the creditors and bureaus will view you as yourself, not a business.
The state gives your business articles of incorporation. Which is much like a birth certificate. EIN is like a social security number for our business. After that we got our Dun and Bradstreet number, which also allows us to validate MBNY Media, Inc. as a business, therefore establishing our business financial credentials further.
For information on getting an EIN:
For information on getting a DNB number:
At this point, we establish a 4-5 business accounts with various distributors, vendors, banks, or credit card companies, in order to establish a net 15 or net 30 account. Over the next 6-12 months, make 3 purchases monthly and pay back the money on time.
The first time you are late with Business credit, YOU ARE DONE.
With personal credit you are protected as a consumer under the fair-credit reporting act. The system is much more forgiving.
Business credit you cannot fix like personal credit, so it's important that you are squared away before establishing business credit.
So what happens after we make those 3 payments to a vendor or distributor?
You pay your bills early. You pay them on time. Those vendors or companies will report your transaction or credit history to Dun and Bradstreet, who will grade your payment history on a scale called Paydex. On time payments equals an 80 Paydex score (FICO equivalency of 800). This can happen in 6-12 months.