How to Establish & Build Business Credit in 10 Easy Steps

Building business credit helps showcase your business’s financial strength to lenders, suppliers, and other interested parties. Similar to a personal credit score, a business credit score appraises a business’s debt, defaults, payment timeliness, and other critical factors. However, building business credit can be challenging for new businesses or businesses with poor credit. Approaching this process correctly can help you build a positive business credit rating as quickly as possible.

A good business credit score can unlock cheaper financing, better supplier relationships, and many other advantages for your business. To help you obtain said business advantages, below details a step-by-step guide on how to establish business credit. Let’s get started!

Importance of Building Business Credit

To succeed, business owners must effectively manage numerous operational processes. While most entrepreneurs focus on supplies, margins, marketing, and other core business processes, managing your business’s credit score is just as important, especially if you’d like to expand your operations. The amount of upfront capital your business can secure via investors is largely dependent on its credit score.

A satisfactory business credit score is not required only by lenders. If you’d like to purchase products on account, you may be required to submit your business credit score to the supplier. Unsatisfactory credit may result in upfront payments, hampering your cash flow and creating other logistical issues. Failing to effectively manage your business credit score can have far-reaching implications on many facets of your operations.

10 Steps to Build Business Credit

Establishing business credit isn’t that complicated. In fact, we’ve outlined a simple 10-step guide to building business credit below. Without further ado, let’s start your business credit journey!

Step 1. Check Your Personal and Business Credit Scores

Before building your business credit, you need to know where you stand. The most popular credit bureaus are Equifax, Experian, Dun & Bradstreet, and TransUnion. You can access your business and personal credit reports via these credit reporting agencies.

For those wondering: Yes, your personal credit score impacts your business credit score, especially if you’ve yet to establish any business credit. You can access a free personal credit report from the previously mentioned credit bureaus. Federal law dictates these three reporting agencies provide individuals with a free credit report every 12 months upon request.

If you find any errors damaging your business or personal score, report these issues directly to the credit bureaus.

Step 2. Register Your Business

If you haven’t registered your business, it’s time to do so. While sole proprietorships require no formal business registration, limited liability companies do.

Compared to a sole proprietorship, the major benefit of a limited liability company (LLC) is its segregation of business liabilities from personal liabilities, protecting entrepreneurs from extreme personal debt in the event that their business fails. Because of this liability protection, investors, lenders, and other parties interested in your credit score typically prefer the structure of an LLC to unincorporated structures, such as sole proprietorships.

Step 3. Get Your EIN and DUNS Number

An EIN and DUNS number help credit bureaus more easily evaluate the financial strength of your business.

Issued by the IRS, an employer identification number (EIN) identifies your business for tax filing purposes. You can apply for your business’s EIN online through the IRS website. (It’s free!)

Meanwhile, Dun & Bradstreet issues DUNS numbers to individually identify businesses within the United States. With a business’s DUNS number, another entity can verify its number of employees, access its credit report, and obtain other pertinent information. You can apply for your business’s DUNS number online through the Duns and Bradstreet website. (It’s also free!)

By submitting your business’s EIN and DUNS number to lenders and vendors, you make it much easier for credit bureaus to accurately track the factors impacting your credit score.

Step 4. Establish Your Business Credit Foundation

Building your business’s credit involves applying for loans, credit cards, vendor accounts, and more. To successfully apply, you must have a strong foundation demonstrating your business’s legitimacy.

Start by building a professional, on-brand website outlining service offerings, contact details, business history, and other noteworthy information. The more professional your website is, the better. Parties may look at your website during their business verification process.

To further establish your business foundation, set up a business phone number, social media accounts, and profiles on popular sites, such as a Google Business Profile.

Step 5. Open a Business Bank Account

Step 6. Obtain a Business Credit Card

Now, you can begin establishing your business credit! To do so, obtain a business credit card. Business cards are a convenient way to pay for business expenses. Additionally, you can issue cards to select employees who are authorized to pay for business expenses on your behalf.

There’s a reason the commercial credit card market is expected to reach a global value of more than $49 billion by 2026. Many business cards offer unique rewards, such as cashback, airline miles, and hotel points. And if you pay off your balance each month, you’ll earn said rewards without incurring any interest.

Step 7. Create Net 30 Vendor Accounts

Establishing net 30 accounts with vendors is one of the most effective methods of building business credit without accruing debt subject to interest. With a net 30 account, you have 30 days to pay the vendor’s invoice. If the vendor reports to credit reporting agencies, you will build business credit simply by paying your vendors.

Note: Some vendors require upfront payments for the first few transactions to determine whether your business can successfully pay invoices on time, after which they may approve your net 30 accounts.

Step 8. Work With Vendors That Report to Credit Bureaus

An important caveat to Step 7 is that the vendors must report to credit bureaus. If your vendors do not report to credit bureaus, you won’t be rewarded for on-time payments in the form of building business credit. That said, ask potential vendors if they report to credit bureaus. If they don’t, consider other vendors offering similar products and reporting to credit bureaus.

Step 9. Optimize Your Credit Utilization

Revolving credit is debt without a set term or payment structure. With revolving credit, you must pay a monthly minimum on the amount you borrow, but there is no date on which the full borrowed amount must be repaid. Examples include business credit cards, as previously mentioned, as well as business lines of credit.

Generally, a revolving credit issues you a maximum amount you can borrow at any given time. However, credit reporting bodies do monitor the percentage of revolving credit you use to gauge how well you handle borrowing money. The term “revolving credit utilization” describes the percentage of your revolving credit limit you’ve used. For example, if you utilize $5,000 of a $10,000 line of credit, your credit utilization is 50 percent.

Credit utilization is a key metric used to determine a credit score. It’s generally advised that you keep your credit utilization below 30 percent. If you utilize more credit, you may see your business credit score falter. In this event, simply paying down your revolving credit, thus lowering your credit utilization, will rebuild your reduced credit score.

Step 10. Monitor Your Credit Reports Closely

Unfortunately, your credit journey doesn’t have a final destination. Once you attain a good business credit score, you should continuously monitor this score. After all, you don’t want all your hard work establishing an impeccable credit score to be for nothing.

There are paid services offering in-depth monitoring. Experian, Equifax, and Dun & Bradstreet offer credit score portals you can pay to access. With these services, you can easily check your credit file, as well as set alerts to ensure you never miss a new credit-impacting event.

If you notice issues or errors on your credit report, relay such matters directly to the credit reporting bureau listing the information.

Benefits of Building Good Business Credit

There are many advantages available to businesses that have built good business credit. Below explores the top five benefits:

Establishing Business Credit: Final Thoughts

Now that you understand how to build business credit, it’s time to start, well, building your business’s credit. However, the catch-22 of building credit is that you must have a credit history to access credit, but you must access credit to build a credit history. Some predatory lenders capitalize on this predicament by offering businesses with no credit history financing options subject to exploitative terms. To ensure you avoid exploitative terms, partner with an experienced loan provider to obtain business funding. Your dedicated account manager can secure funding with lower interest rates and flexible repayment terms. Reach out today to start building your business credit the right way!