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While most people are familiar with the common sense methods of building personal credit, few understand how to build business credit. Business credit is built along the lines of different criteria than personal credit, as it is based on a fictitious legal entity. Naturally it is a little more tricky to set up, but the results of this setup allow you to buy things on credit without putting your personal credit at risk.

Creating a business entity is a bit tricky. First you have to either incorporate or form an LLC, and register with the Federal government and get an Employer Identification Number (EIN). An EIN is the business equivalent of a social security number, and is what you will use to identify your business when you do your taxes. You must then talk to your lawyer and find out what state permits and fees must be completed and paid for registration purposes, and then set up a bank account and separate telephone line in your business’ name. Finally, you have to register your business with the three business credit reporting bureaus: Dun & Broadstreet, Experian, and Business Credit USA.

Once this is done, you will have a legally recognized business entity that is separate from your personal credit file, and can focus on how to build business credit. Like personal credit, this starts with credit cards. Business credit cards are a little more challenging to acquire than personal credit cards, as most business credit card companies will not issue a new business credit without consideration of personal credit. This takes a little hunting, but about one in nine business credit cards will be flexible enough to allow this. The approval process can be expected to take about two to three months. Once approved, you can now start buying things on credit and paying them off. You will also want to start merchant trade lines in your business’ name as well.

Now, focus on building profits. This is the most important component of business credit. Unlike personal credit, business credit bureaus put more weight on income than they do on payment regularity. Business loans typically go to businesses with the biggest profit margins and the most regular business cycles. While this is more challenging, it is the only way how to build business credit.

This Business article was written by Mark Karavan on 11/5/2009