Separating Your Business & Personal Credit

If you run a business, you want to do your best to help it succeed, don’t you? Even if you don’t have an MBA (or even a formal education in finance or business), you can still take measures to ensure your business is financially set up for success. The first step on that path is separating your business and personal finances. Why? Because your business needs to establish its own credit history and credit scores so that, should you one day decide to apply for a loan, you’re well-positioned to get a great rate.

What Is Business Credit?

Just like you have personal credit reports and scores, your business can have its own credit reports and scores. Any time you open and use a business credit card, work with a vendor who allows you to buy on credit, or take out a business loan, that information may get added to your business credit history. Over time, this data accumulates, and business credit reporting bureaus such as Dun & Bradstreet, Experian, and Equifax can use that data to create a business credit score. A high score, naturally, is more appealing to lenders. Even if you don’t plan on taking out a loan right now, it’s important to understand your business credit anyway: business owners who do understand their business credit are 41% more likely to be approved for a business loan, so should the day come, you’ll be ready.

How to Separate Your Business and Personal Credit in 3 Easy Steps

Let’s look at what you need to do to start building that business credit. It won’t hurt, I promise.

1. Separate Your Bank Accounts

Many entrepreneurs use their personal checking accounts to pay for business expenses, and that’s a no-no. Open a separate business bank account so you disconnect those expenses. Not only will this make it easier to reconcile your accounts, but it will also make it easy to file your business taxes.

2. Get a D-U-N-S Number

A D-U-N-S number is a bit like a Social Security number for your business. It identifies you in the Dun & Bradstreet commercial credit database (this is one of the major business credit bureaus). You may also need this number if you apply for government contracts or grants.

3. Open Accounts That Report

Now you want to work on building your business credit. Open one or two business credit cards and put your business expenses on those (making sure to pay off your balance each month). Also, open accounts with vendors or suppliers who report to the business credit bureaus. Note: not all vendors do, so ask first. Not only does this free up your cash flow when you can pay for supplies 30 days after you receive them, but if they report your on-time payment to the credit bureaus, it will also help build your credit. Over time, you will build your business credit history and credit score so that, should you decide to apply for a business loan, you’ll have a better chance of getting approved.