Building business credit with an EIN: what actually reports

What an EIN starts and what it doesn't

The EIN is a free federal tax ID. The IRS says, "You never have to pay a fee for an EIN," and warns about websites that charge for one.

For credit, think of it as a label. It helps suppliers, banks and bureaus attach records to your company instead of to you. But with no reporting accounts behind it, the label sits on an empty folder.

The business bureaus, mainly Dun & Bradstreet, Experian and Equifax, rely on companies that choose to share payment data. D&B's own materials describe supplier participation in its trade program as voluntary. That's why "do you report?" is the question that matters most.

The setup, in order

1. Register the business with your state and pick a structure with professional advice. An LLC or corporation keeps the business's identity separate from yours in a way a sole proprietorship can't.
2. Get an EIN directly from the IRS. It's free and available online.
3. Open a business bank account in the exact legal name. Use that same name, address and phone number on every account so bureaus can match records.
4. Request a D-U-N-S number from Dun & Bradstreet. D&B says "there is no cost to request and receive a D-U-N-S Number," and most arrive within 30 business days. An expedited option costs a fee.
5. Open two or three supplier accounts that report, buying things the business needs anyway.
6. Add a business credit card from an issuer that reports to business bureaus, and use it lightly.
7. Pay every invoice before its due date.
8. Check each bureau's file after a few billing cycles to confirm the accounts appear.

What reports, and what to ask

Reporting is up to each company, and policies change. Before relying on any account to build credit, ask these questions.

Card issuers are a good example of how much this varies. Capital One's own page says that on some of its business cards, routine activity goes to business bureaus while personal bureaus only see the account if it falls out of good standing. Other cards it lists report to personal bureaus every month. Business cards that report to personal credit covers this in detail.

Watch out: some "business credit builder" programs sell you starter vendor accounts or tradelines, and some go further and tell you to use your EIN instead of your Social Security number on personal applications. The FTC says schemes that get people to apply for EINs "under false pretenses" to create a new credit identity are scams, and using a number other than your own can bring fines or prison. See CPN scams.

The PAYDEX minimum: three experiences, two suppliers

D&B's documentation says a PAYDEX "will not be calculated" for businesses with fewer than three trade experiences, and that at least two suppliers must be reporting. One generous supplier can't create a score on its own.

Once it exists, PAYDEX is dollar-weighted and maps payment speed to a number. D&B's chart puts paying within terms at 80, about 15 days late at 70, and about 30 days late at 50. Taking early-payment discounts maps to 90, and paying ahead of terms to 100.

Example: a supplier gives you net-30 terms on a $1,200 invoice dated June 1, so it's due July 1. Paying on June 30 is within terms. Paying on June 15 is ahead of terms. Paying on July 16 is 15 days beyond terms, the pattern D&B ties to a 70.

Business credit scores decoded covers how Experian and Equifax score the same history differently.

What Experian looks at

Experian lists the inputs for its business score: the number of trade experiences, outstanding balances, payment habits, credit utilization and trends over time. It adds public records such as liens, judgments and bankruptcies, plus profile data like years on file, industry code and business size.

A few of those you can't rush, like years on file. The rest respond to how you run the accounts: more reporting accounts paid on time, low balances against limits, and no unresolved liens or judgments.

Keep the personal side clean while you build

For the first few years, most lenders will still read your personal credit next to the business file, and many will ask for a personal guarantee. Business credit vs. personal credit explains where the two stay linked.

Keep personal card balances low, pay every personal account on time, and check your personal reports free at AnnualCreditReport.com after opening any business account, to see whether it landed there too.