Business credit basics: a plain guide
Short answer: In this guide, "business credit" means the record of how a business pays its bills. It belongs to the business, not to the owner.
Reviewed by the Red Spectrum Customer Support Team. Last reviewed .
A business is its own thing
Think of two jars. One jar holds your own money. The other holds the money of your business. Business credit follows the second jar.
Your personal credit follows you. Business credit follows the company. They are two records, and they are kept in two places.
The FTC says, "Individual consumer credit reporting is covered by laws such as the Fair Credit Reporting Act (FCRA)." That sentence is about reports on people. This guide is about the other kind, the kind about a business.
Piece one: a tax ID for the business
The first piece is an EIN. The IRS says, "An EIN is a federal tax ID number for businesses, tax-exempt organizations and other entities." Think of it as a number that belongs to the business.
Piece two: a separate bank account
The next piece is a bank account in the business name. The SBA says, "Business banking offers limited personal liability protection by keeping your business funds separate". When the money is kept apart, it is easy to see what belongs to whom.
Piece three: accounts with vendors
A vendor is a company that sells to your business. Some vendors let a business pay later. One kind is a net-30 account, where the bill is due 30 days after it is sent. You can read more in what is a net-30 account.
Piece four: a record of payments
When a business pays its bills, a record can be made of that. Factiiv says, "Most business activities are not captured by traditional credit bureaus and do not end up on credit reports." That is why a business may need to take steps to have its payments recorded at all. Read more in how trade payments are reported.
Piece five: a look at your reports
The SBA says, "Monitor Your Credit: Regularly check both your personal and business credit reports for any loans or accounts you didn’t open yourself." Looking at a report is a good habit for any owner.
Reports are not all the same
Different companies keep different records. Each reader may see something different. This guide does not say what any bank or vendor will decide. No one can promise that.
What Red Spectrum does
Red Spectrum is a membership for small business owners. A member gets a net-30 vendor account. The member spends it on real business services from our catalog. We report every membership payment and every catalog repayment to Factiiv. We do not report to anyone else.
No guarantee of funding, loan approval or credit scores. Payment activity is reported to Factiiv.
Questions people ask
Is business credit the same as personal credit?
No. Personal credit is about you. Business credit is about the company. The FTC sentence above is about reports on individuals.
Do I need an EIN?
The IRS says an EIN is a tax ID number for businesses. Many owners get one early. This guide cannot tell you what your own business needs. A tax adviser can.
Does Red Spectrum promise a loan?
No. We do not promise funding, loan approval or credit scores.
Sources
- Federal Trade Commission, remarks on the small-business credit reporting study · https://www.ftc.gov/system/files/ftc_gov/pdf/remarks-of-chair-lina-m-khan-regarding-6b-study-of-small-business-credit-reporting.pdf · checked
“Individual consumer credit reporting is covered by laws such as the Fair Credit Reporting Act (FCRA).”
- Internal Revenue Service, Employer ID Numbers · https://www.irs.gov/businesses/small-businesses-self-employed/employer-id-numbers · checked
“An EIN is a federal tax ID number for businesses, tax-exempt organizations and other entities.”
- U.S. Small Business Administration, Open a business bank account · https://www.sba.gov/business-guide/launch-your-business/open-business-bank-account · checked
“Business banking offers limited personal liability protection by keeping your business funds separate”
- U.S. Small Business Administration, Manage your finances · https://www.sba.gov/business-guide/manage-your-business/manage-your-finances · checked
“Monitor Your Credit: Regularly check both your personal and business credit reports for any loans or accounts you didn’t open yourself.”
- Factiiv · https://factiiv.io · checked
“Most business activities are not captured by traditional credit bureaus and do not end up on credit reports.”
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