How to Establish and Build Business Credit
Janet Schaaf is a freelance writer, editor and proofreader who considers reader advocacy to be her calling. After taking a few roads less traveled, Janet completed a bachelor’s degree in English Literature from the University of Missouri-Kansas City, with English Department Honors. She has been correcting grammar and checking facts since she could string a sentence together. For the past three years, Janet has focused on making personal finance topics understandable and relatable. Loan terms and credit card agreements can look overwhelming, but understanding what you’re agreeing to is paramount in grasping the impact debt can have on your life.
A business credit score is often needed for business financing, insurance quotes and establishing relationships with vendors and suppliers. Building business credit can also help you unlock more competitive rates and terms while protecting your personal credit score.
Since growing your business credit can take time, it’s essential to start right away. Let’s take a closer look at how to build business credit.
What is business credit?
Your business credit report contains essential information about your company, including multiple scores, ratings and payment history. The main business credit bureaus have their own score ranges to help verify your company’s financial stability and creditworthiness.
Several factors are used to calculate your business credit score, including your company’s annual revenue, the estimated value of your business assets and credit history length. Credit bureaus also consider your company’s outstanding debts, UCC filings and reports like liens and judgments, along with your company’s overall industry risk, when determining your business score.
Lenders, partners, suppliers and other companies can then review your company’s business credit profile before extending credit or deciding to work with you. Maintaining a good score can improve your chances of securing small business financing with higher loan amounts, better rates and more flexible repayment terms.
Business credit vs. personal credit
While new business owners can rely on their personal credit and personal guarantees to qualify for small business financing, the risk of doing so grows as your company expands. For example, if you sign a personal guarantee for a business loan and your company fails, you will be held personally liable for the debt.
Working to establish your company’s business credit score as a separate entity can show lenders that your company can successfully thrive on its own. Keeping your personal and business transactions separate can also paint a clear picture of your company’s debt-to-income (DTI) ratio, helping lenders and business partners accurately assess your company’s financial wellbeing.
However, not all lenders and vendors report payment history to the business credit bureaus. Some lenders may require a positive business credit report in addition to a good to excellent personal credit score.
10 ways to build business credit
Boosting your business credit can help open doors for more funding opportunities, such as increasing your eligibility for small business loans, lines of credit and other financial assistance.
Here are 10 steps on how to get business credit.
1. Register your business as a separate entity
The business entity you picked when starting your company can play a critical role in shaping your credit profile.
- Corporations and Limited Liability Corporations (LLCs): If you run your business as a corporation or LLC, there is a well-defined separation between the owner and company. This means you can establish your business’s score from scratch while protecting your personal credit profile.
- Sole proprietors: Since personal and business boundaries tend to blur with sole proprietors, lenders and potential business partners may weigh your personal credit score more heavily when determining your creditworthiness. Additionally, your personal financial past could affect your business finance opportunities, such as if you’ve had a bankruptcy or personal loan default.
2. Get an Employer Identification Number
The IRS requires many businesses to have an employer identification number (EIN) to apply for licenses and permits, conduct business and file taxes. Even if it’s not required, getting an EIN is still a good idea since it protects your personal Social Security number and helps minimize the risk of identity theft. Additionally, some banks require an EIN to open a business bank account.
Having an EIN can help draw the line between business and personal activities, helping strengthen your company’s business credit profile.
3. Apply for a DUNS number
The three main business credit bureaus are Experian, Equifax and Dun & Bradstreet. The first two credit agencies create your business file based on borrowing information and public records. However, Dun & Bradstreet requires you to apply for an official DUNS number in advance to receive their credit services.
You can request a free DUNS number on the Dun & Bradstreet website. Before agreeing to work with you, lenders and business partners can use your unique nine-digit number to view your business profile to determine your company’s overall financial health. Your DUNS number may also be required when applying for federal small business grants.
4. Set up a business bank account
Opening a business bank account under your company’s name can help keep your business and personal finances separate, making tracking qualified business tax deductions easier. A business account will also establish you as an existing customer within that institution, helping strengthen future loan and credit applications. Some banks, like Bank of America, also provide exclusive benefits, rewards and discounts for business members.
5. Open a business credit card
Business credit cards can cover a range of business expenses and potentially earn you generous sign-up bonuses and travel rewards. It’s typically easier to qualify for a business credit card than a small business loan, especially if you have a robust personal credit score. Depending on the card issuer, on-time payments could help build your business credit.
Keep in mind that credit card interest rates are usually higher than other types of small business financing, so it’s best to pay off your balance in full each month. Late and missed payments could negatively impact your business and personal credit scores.
6. Make early payments
Payment history is one of the most critical factors used to determine your business credit score. You can improve your score by making on-time payments for all your business debts.
Take this a step further and aim to pay early whenever possible. For example, paying your bills before they’re due can result in a higher PAYDEX score — the score used on Dun & Bradstreet reports.
7. Establish trade lines with suppliers
Trade and credit lines are essentially accounts-payable accounts, allowing businesses to acquire the inventory and services they need today, with the option to pay later. Establishing credit for business can help balance a company’s cash flow while boosting its credit profile.
Here are some examples to consider:
- Vendor credit: Some vendors offer a “net 30 account” where businesses can buy materials and supplies on credit with a standard 30-day repayment plan.
- Supplier credit: Also called trade credit, supplier credit allows business owners to purchase goods or services for their company and repay the debt at a later date. This agreement generally offers longer terms than vendor credit.
- Service credit: If your business has a brick-and-mortar space, such as a retail shop, you can apply for service credit with a range of utility companies. Examples include gas, water, internet and electricity.
If your suppliers report to the credit bureaus, you don’t need to take any extra steps. Otherwise, you have the option to manually add trade references to your Dun & Bradstreet file. But to do so, you’d need to purchase the Dun & Bradstreet CreditBuilder program — which currently costs $149 a month. And that doesn’t guarantee that every report will be accepted by Dun & Bradstreet; in 2022 the company was sued by the FTC, in part for issues with adding trade references to CreditBuilder. The order required updates to the program, but it’s worth it to spend time researching before deciding if the hefty fee is worth it for your business.
8. Pick lenders that report to business credit bureaus
Traditional banks and online lenders typically report your business loan and credit card payment histories to the major business credit bureaus. In contrast, merchant cash advance (MCA) companies generally don’t report on-time payments.
When comparing small business lenders, be sure to inquire about their reporting practices to find the best fit for your business needs.
9. Borrow responsibly
Sticking to your business budget and taking on only what you can handle is another way to maintain your business credit. Pay attention to your credit utilization, which compares your current debt to your credit limits. The lower your credit utilization, the better. Lenders typically require a credit utilization below 30%, although the 1% to 10% range can help improve your score.
10. Monitor your personal and business credit reports
Monitoring your business and personal credit histories can help you spot mistakes while watching out for fraudulent activity. If you spot an error, make sure to file a dispute with the credit bureaus.
You can monitor your personal credit score for free and receive instant alerts with LendingTree Spring. To get your free business credit score, you can explore a range of credit monitoring services, such as Dun & Bradstreet’s CreditSignal. You can also sign up for paid monitoring services like Experian’s Business Credit Advantage.
What is a good business credit score?
Business credit score ranges can vary based on the reporting credit bureau. Here’s a breakdown of the typical ranges and what they mean:
- Dun & Bradstreet: As one of the most common methods for evaluating a business’s credit profile, Dun & Bradstreet PAYDEX scores range from one to 100, with 80 or higher considered a good score.
- Experian Business: Experian Intelliscore’s range goes from one to 100, with 50-75 considered a fair score and a score of 76 or higher considered good.
- Equifax Business: Equifax’s Credit Risk Scores range from 101 to 992, with no specified numbers relating to fair or good. Like the others, it’s best to aim high.
- FICO Small Business Scoring Service: The FICO Small Business Scoring Service (SBSS) is becoming more popular, with scores ranging from zero to 300. A good score is anything over 160 or 180. Note that the FICO SBSS does consider your personal FICO Score when calculating this score.
Frequently asked questions
The time it takes to establish business credit depends on multiple factors, such as your business’s structure, cash flow and debt repayments, as well as the personal credit profiles for all business owners.
If you have a new business and follow the above tips, you can likely establish a positive business crediting rating in one to three years. Remember to double check that your business accounts report to the major business credit bureaus to help speed along the process.
If you want to build business credit quickly, you can officially register your business and apply for a business credit card in your company’s name. From there, establish trade lines with vendors and suppliers, checking if they report payments to the major business credit bureaus.
Signing up for business credit monitoring can help you track your progress while keeping an eye out for mistakes or fraudulent activity. You can also apply for a startup business loan using your personal credit — again, make sure the lender reports activity to the appropriate credit bureaus.
No, personal credit accounts won’t help boost your business credit profile. However, you can use a personal credit card for business expenses, which can help cover basic startup expenses. Once you’ve established your business and have an EIN, you can try applying for a business credit card to keep transactions separate.