Business Funding

How to Establish & Build Business Credit in 10 Easy Steps

female business owner asking lender how to get business credit

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

Opening a business bank account helps separate your personal and business finances. Consider contacting the bank or credit union you utilize for personal banking, as they are more likely to approve your business account if you have a long banking history at one of their branches.

With your business’s finances easily accessible via your business bank account, you can demonstrate indicators of financial strength to lenders, vendors, and other interested parties with little to no effort.

man receiving credit for business from a banker in the form of a business loan

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.

Pay your vendors on time or early

If you want an excellent credit score, pay your vendors on time or early. While paying early ensures you never miss a payment, it offers other benefits. For example, Dun & Bradstreet’s Paydex Score awards better scores to businesses that pay vendors early.

Manage cash flow using your business credit

After obtaining a business credit card, consider managing your business’s cash flow with your credit. By putting expenses on credit, including vendor payments when applicable, you can improve your cash flow and increase your credit score without accruing interest if your credit card bill is paid off in full each month.

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:

dollar bill graphic symbolizing how to build business credit

More financial stability for your business

Without established business credit, accessing working capital by way of loans, investments, and other types of funding can be challenging. And access to capital provides your business with more financial stability, especially in the event of an unforeseen circumstance. Business-specific unforeseen circumstances, such as machinery breakdown, may create a situation in which you need a fast injection of capital.

Additionally, unforeseen circumstances in the economy may create a situation in which you need capital to weather the storm. However, accessing capital is more difficult during times of economic downturn. Businesses having established good credit before economic downturns are at an advantage during these economically precarious times. That said, building business credit is one of many ways you can prepare your business for an economic recession.

graphic of loan agreement with interest rate is how to establish business credit

Cheaper financing options

Businesses with established credit are typically offered better financing options, including lower interest rates and more flexible payment terms. With no credit history, your business may have difficulty securing financing from banks, credit unions, and other traditional lenders. With limited options, you may have no choice other than exploitative lenders charging exorbitant interest rates, which may impact your business’s profitability.

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Easier to separate business and personal finances

Businesses with neither credit history nor plans to build credit are considerably disadvantaged by the intermixing of personal and business finances. Without a business bank account, separating your business funds from your personal funds can be a frustrating, time-consuming task. Additionally, obtaining a personal loan to finance your business operations leaves you personally exposed to the amount of the loan, whereas obtaining a business loan for an LLC would not result in personal exposure.

graphic of hand putting deposit into business credit builder account

No prepayment is required for some vendors

If your business operations heavily rely on supplies from vendors, you already know upfront payments can create cash flow issues. However, businesses with established credit may be able to secure supplies with no upfront payment or deposit. The ability to access supplies and sell your stock before any payment is due can drastically reduce cash flow issues.

graphic of handshake agreeing to build business credit in 30 days

Better terms from suppliers

Because a good business credit score indicates a track record of repaying loans and promptly settling supplier accounts, suppliers may deem you a low-risk client and offer you more convenient payment terms. Accessing more flexible payment terms from suppliers, including net 60 or net 90 accounts, can provide more leeway in your business’s cash flow.

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!

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Business Credit FAQs

How long does it take to build business credit?

The exact length of time it takes to build business credit depends on various factors: the age of your business, your business practices, and the type of credit-building strategy you employ. That said, it can take months for accounts to appear on your business credit file and years to build a good business credit score.

How can I build business credit with bad personal credit?

While a poor personal credit score can make accessing business credit cards and loans more difficult, your personal and business credit scores are separate. Once you’ve established your business’s credit history, your personal credit score will be a less important determining factor for lenders.

To build your business’s credit history with a poor personal credit score, utilize net 30 accounts from vendors reporting to credit bureaus. Once you’ve established a positive credit history via on-time payments to net 30 accounts, you’ll gain access to more credit-building options.

What is a good starting credit score for a business?

Generally, an Equifax business credit report over 570 is considered good. A Paydex Score over 80 is also considered good.

However, “good” credit varies depending on the reporting body. It’s best to check what your bureau of choice for credit monitoring considers a good score.

Can you establish business credit without going into debt?

Yes. While loans are one of the best avenues through which to build credit, you don’t have to go into debt to improve your credit score. As previously mentioned, securing net 30 accounts with your vendors is an excellent way to establish a credit history without taking on debt. Another way to avoid debt while building credit is by using business credit cards and immediately paying them in full.

Can an LLC apply for and get business credit?

To build business credit, you can apply for business loans, obtain a business credit card, or engage in other credit-building practices. Any type of business structure, including an LLC, is free to engage in credit-building practices.

Can I add already open accounts to my business credit reports?

If you notice an already-open account missing from your credit report, communicate this directly to the credit reporting bureau(s) missing this information. However, do take note that business bank accounts, while useful in securing credit, are not taken into consideration when calculating your business credit score.

What types of small business loans affect business credit?

Most business loans affect business credit. Almost every lender reports confirmed payments, missed payments, and other relevant loan details to credit reporting bureaus. Ask your lender if you have any confusion regarding your loan’s impact on your business credit score.

Will opening a business checking account help my business credit score?

In most cases, opening a business checking account will not impact your business credit score. Most financial institutions do not report bank account activity to credit bureaus.

Can I build business credit with a personal credit card or loan?

No. Your business credit score relates only to transactions conducted by your business.

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