Understanding EIN Credit and How It Affects Your Business Credit
Learn how to check your EIN credit score, understand key factors, and explore strategies to establish, monitor, and improve your business credit effectively. 6 min read updated on September 11, 2024
KEY TAKEAWAYS
An EIN allows business owners to build a business credit profile that is separate from their personal credit profile.
Business owners can use Dun & Bradstreet, Experian, or Equifax to monitor their credit.
Inaccuracies on credit reports should be disputed immediately because they impact the financial health of the business.
What is an EIN and Why Does It Matter?
An Employer Identification Number (EIN) is a unique nine-digit number the Internal Revenue Service assigns to business owners to set up a tax account. Like a Social Security Number, the EIN is not used just to pay your taxes, it also helps business owners create a business profile to establish business credit. This profile is completely separate from their personal credit profile. This financial tool lets business owners access credit to pay for expenses, make purchases, and leverage debt.
What Is an Employer ID Number?
An EIN is one type of tax identification number that is assigned just for your business. Like an individual's social security number, this nine-digit number helps the IRS identify and track payments to businesses with employees, including:
Limited liability companies
Partnerships
Corporations
When the IRS assigns an EIN to your business, they issue CP 575 to confirm the issuance of the tax identification number; CP575 can be issued by mail or email. The IRS will, however, never send the notice by email or fax. If you receive a notice this way, you should contact the IRS immediately.
Once you have the CP575 in hand, you can find your EIN in the first paragraph of the letter. You'll typically see your EIN in this form: XX-XXXXXX.
After receiving the letter, you should carefully read the contents to ensure it has been issued correctly. If you need to make any changes, contact the IRS immediately. If you have not applied for your EIN yet, you can apply for one here.
How EINs Differ from Other Business Identifiers
The IRS issues EINs specifically for tax administration purposes. While this is so, you can also use it to hire employees, run payroll, complete your payroll taxes, complete your estimated taxes and open business bank accounts. On the other hand, a DUNS number (Data Universal Numbering System) identifies businesses for credit reporting and contracting with government agencies.
What is a Business Credit Score?
Key Components of a Business Credit Score
Like personal credit scores, businesses also have scores that show their creditworthiness to lenders. Because your business's credit score reflects your history of paying bills on time, banks and other lenders will use credit reports to consider approving your business for a loan or for another financing. These reports help them determine the likelihood that your business will pay them back the money they lend to you.
In addition to lenders, business credit scores tell your vendors and suppliers how likely you are to pay them for the products or the services they provide your business. Good credit scores also help your business qualify for lower rates on business insurance and some loan options.
Importance of a Good Business Credit Score for Your Company
A strong business credit score helps your company get loans and credit at good interest rates. Lenders use this score to assess your company's risk. A higher score can mean lower interest rates and better repayment terms. Most business credit scores range from 0 to 100. A higher score means lower risk. A good score is usually 75 to 100, depending on the credit agency.
How Are Business Credit Scores Calculated?
Business credit scores are calculated based on your company's financial history, such as:
Credit utilization rate
Debt payment history, including outstanding debts
Length of credit history
Bankruptcies, liens, and judgments
Size of your company
Industry risk.
How to Check Your EIN Credit Score
Step-by-Step Process to Access Your Business Credit Reports
Obtaining your business credit reports from major bureaus like Dun & Bradstreet, Experian, and Equifax, varies by agency. Let’s take a look below to learn how to obtain a credit report from each of the major reporting agencies.
Comparing Credit Reporting Agencies
When reviewing your credit report, it is important to note that each credit report is slightly different. Let’s take a look at some of the differences below.
Improving Business Credit Scores
Once your company obtains a DUNS number, the following are some suggestions that will help your business establish a good credit score:
As a sole proprietor, your personal financial information is combined with your business's financial information. As a result, any missteps in your personal credit could damage your company's credit score. Structuring your business as an LLC or corporation will help separate your personal credit from your business credit.
Pay vendors and suppliers in a timely manner. Use your EIN when applying for credit trade accounts with your vendors and pay the amount in full prior to the due date.
Build your company's credit scores by using your EIN to apply for a business credit card. Make any necessary purchases and repay the amount in full prior to the due date. Alternatively, you can use your EIN to apply for a small business loan, which you should repay in full prior to the due date. As another option, you can use your EIN to apply for a small business loan, which you should repay in full prior to the due date.
Contact any businesses that your company has credit with and ask where they report that your company has made its payments on time. This lets you know which business credit reports you need to monitor. If you discover that not many of these businesses are reporting your good credit, consider opening accounts with companies that do report your business's good credit to reporting agencies.
Building and Improving Your Business Credit Using an EIN
Establishing Credit with Vendors and Suppliers
To build business credit with your EIN, first open trade credit accounts with vendors and suppliers. When you buy goods or services from vendors, fill out a credit application. Provide your business details, your EIN, and sometimes bank references. Once your trade line is open, make your payments on time to establish good credit with the vendor.
Applying for Business Credit Cards and Loans with Your EIN
As you grow your business credit, you can apply for business credit cards and loans. Some business credit cards allow you to use your EIN. However, you should know that some cards require you to use your SSN.
Monitoring and Maintaining Your Business Credit Score
Tools and Services for Regular Credit Monitoring
After you build your business credit, track it. Stay up-to-date on your score. Tracking your credit score will help you identify errors, prevent fraud, and maintain a healthy financial profile.If you are ready to track your business credit score, you can use any one of the following cites:
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Dun & Bradstreet CreditSignal
Experian Business Credit Advantage
Equifax Business Credit Monitoring
How to Dispute and Correct Errors on Your Business Credit Report
Errors on your business credit report can harm your finances. They may make it hard to get loans or lines of credit with vendors. It's vital to fix these errors. They affect your credit rating and your company's finances. Let’s take a look at a few ways to dispute errors below.
How to Use Your EIN for Credit Purposes
To establish business credit using an EIN, your business must apply for a DUNS number. This number is issued by the credit bureau, Dun & Bradstreet. You must provide information such as:
Your company's legal name
Business structure
Year of establishment
Number of employees
Any alternate names your company uses (“doing business as” names).
Keep Your EIN and Business Credit in Check
Using your EIN for business credit is vital. It's key to a strong financial base for your company. Separating personal and business credit protects your finances. It also builds your business's credit profile. By obtaining an EIN and maintaining a good credit rating will help you and your business have more access to capital for business needs.
FAQ’s
What credit score does a new LLC start with?
When you initially start your LLC, you do not have a credit rating. However, you can build your credit over time.
How long does it take to build credit on EIN?
It can take anywhere from six months to one year to build your business credit. While you are building your credit, it is important to focus on making timely payments and also using your EIN to set up your credit lines.