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How to Build Business Credit in 7 Steps

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Business credit scores are calculations that represent your ability to repay debt obligations. Every small business owner should know how to build business credit and improve their business credit score. A good business credit score can be the ticket to a business loan or favorable terms when you purchase goods and services from suppliers.

How to Establish Business Credit

Here are the seven steps to establish your business credit:

  1. Incorporate your business
  2. Obtain an employer identification number (EIN)
  3. Open a business bank account
  4. Establishing business credit with the main credit bureaus
  5. Establish a line of credit with vendors
  6. Make timely payments
  7. Calculate your business credit score

What a Business Credit Score Is

A business credit score is an indicator of your business’s creditworthiness, which lenders and creditors use to determine your risk as a potential borrower. Business credit scores are offered through four main scoring models, which include Dun & Bradstreet, Experian, Equifax, and FICO LiquidCredit SBSS. Scores often range from 0 to 100, except for FICO, which ranges from 0 to 300.

How to Build Business Credit

Good business credit scores can be your ticket to a business loan or favorable terms on a business credit card. To build good business credit, follow some smart practices like establishing a line of credit with vendors. Also, be sure to repay your debts on time.

Follow these seven steps to establishing your business credit.

1. Incorporate Your Business

When you incorporate your business or form a limited liability company (LLC), you separate your business and personal credit profile legally. The most common reason small business owners choose to incorporate their businesses is to protect them from personal liability for the actions of the corporation. However, this is not the only advantage to incorporating your business.

Some of the advantages of incorporating your business are:

  • Small business owners are protected from personal liability of company debt obligations
  • Corporations are the best for companies that eventually want to go public
  • Corporations can raise investment capital
  • It’s generally easier to transfer ownership under a corporation
  • Corporations aren’t dependent on the life of an individual and can continue indefinitely
  • There are more opportunities to create tax benefits

Incorporating your business tells credit bureaus that your business exists and allows them to create credit reports for it. If you choose to keep your business as a general partnership or sole proprietorship, it doesn’t allow for separation between the business and personal credit history.

2. Obtain an EIN

Just as personal credit bureaus use your Social Security number for personal credit reports, business credit bureaus use a business’s EIN for business credit reports. The EIN is essentially the Social Security number of a business. You’ll need one to incorporate your business, apply for business loans, open a business bank account, use with vendors or suppliers, and file business taxes.

You can apply for an EIN online, which only takes about 10 minutes. Once you receive your EIN, you can use it immediately for most business purposes. However, you’ll need to wait about two weeks to use your EIN to file taxes electronically.

3. Open a Business Bank Account

Every business needs a small business checking account for handling money and its financial transactions. Opening a business bank account under your business’s legal name is required if you want to maintain the liability protections offered by LLCs. If business owners commingle their business and personal finances, then a creditor has the right to say that company owners are liable for all company debts or damages.

While many checking accounts are similar, some banks don’t charge monthly account fees or make it easy to avoid them by meeting minimum balance requirements. These free business checking accounts can help keep traditional bank fees to a minimum, which allows you to keep more money in your business.

4. Establishing Business Credit With the Main Credit Bureaus

It’s important to know how to establish business credit with Dun & Bradstreet, Experian, Equifax, and the FICO LiquidCredit small business credit score (SBSS) scoring model. Each credit reporting agency has its own process for establishing business credit.

Dun & Bradstreet

Dun & Bradstreet (D&B) offers the most commonly used business credit score. D&B collects public business and industry information, payment history, and financial performance information to generate three individual business credit scores. To gain access to these scores, you must first get a data universal numbering system (D-U-N-S) number. D&B is the only credit bureau that requires you to establish business credit with them on your own.

To complete the two-part process for establishing business credit with D&B, you’ll need to:

  1. Get a D-U-N-S number: This is a unique nine-digit identification number that is used to create your business credit file, similar to how your Social Security number is associated with your personal credit reports. You can apply for a D-U-N-S number for free on D&B’s website or through a credit platform like Nav.
  2. Provide at least three trade references:Trade references, similar to employment references when you apply for a job, come from suppliers and creditors that you’ve done business with. You can get trade references by asking vendors with whom you have a positive relationship to report your payment activity to D&B.

It’s also possible that you already have a D-U-N-S number if a vendor or supplier previously reported information to D&B. You can check to see if you already have a D-U-N-S number by visiting the D&B website and searching for your company. If you already have a D-U-N-S number, you’ll want to make sure that you check the accuracy of the information on your D&B credit report.

Equifax & Experian

You don’t need to create an account or get trade references with Equifax or Experian. These bureaus look at the secretary of state records automatically for new business filings and other public records. They can score your business solely based on demographic information in such records.

However, Equifax allows for business owners to self-report company information. This isn’t required, but like D&B, up-to-date and accurate information can benefit your Equifax business credit score. In contrast to Experian, business owners that want the most accurate credit scores should take advantage of Equifax because of the ability to self-report information.

FICO LiquidCredit SBSS

The FICO LiquidCredit SBSS is a mix of your personal and business credit score. FICO is unique because it isn’t technically one of the three major credit bureaus, but it still provides its own unique score.

FICO provides a business credit score based on information already collected by Dun & Bradstreet, Experian, and Equifax. Therefore, there is nothing you need to do besides having your credit information looked at by the three main bureaus. All business owners need to focus on this score because it’s most commonly used when approving Small Business Administration (SBA) loans.

5. Establish a Line of Credit With Vendors

While there is a handful of information that can show up on your business credit report, trade lines can be some of the more important pieces of your credit history. A business trade line is a line of credit between a business and a vendor, which allows your business to pay its balance at a later date.

If you want to build your business credit, open a line of credit with companies that report to the business credit bureaus. It’s recommended to have three to five lines of credit with vendors that report payment information to establish strong business credit, such as a small business credit card. You can compare the best credit cards in our credit card marketplace.

6. Make Timely Payments

To build business credit, it’s crucial to repay all your creditors and lenders on time. Your payment history with vendors, lenders, and credit issuers is the most important factor when business credit bureaus calculate your business credit score. Similar to your personal credit score, late payments will hurt your business credit score. Plus, when you fail to repay your debt, you may incur expensive late fees and interest charges.

7. Calculate Your Business Credit Score

Business credit scores generally range from 0 to 100, except for the FICO LiquidCredit SBSS, which ranges from 0 to 300. Higher scores suggest to potential creditors and vendors that your business is at a lower risk to make late payments or miss payments altogether. Each business credit bureau has its own measure of what they consider to be a good score.

The four most common business credit scores are:

  • Dun & Bradstreet PAYDEX Score
  • Experian Credit Ranking Intelliscore
  • Equifax Business Payment Index
  • FICO LiquidCredit SBSS

How Business Credit Scores Are Calculated and Used

Business credit bureaus consider different factors to calculate business credit scores, such as outstanding balances and payment history. It’s important to establish credit with all four bureaus and understand the most common business credit scores. While suppliers tend to prefer D&B, banks and other lending institutions prefer Experian and Equifax.

You should also know that the FICO LiquidCredit SBSS incorporates your personal credit score and is used for SBA loan approvals. Banks generally consider a good score to be at least 160, but some may go down to 140.

Why a Good Business Credit Score Matters

Your business credit score assesses your company’s ability to pay back creditors and suppliers on time. A good business credit score can help you qualify for necessary financing and potentially help you avoid a personal credit check altogether.

A good business credit score can help you:

  • Qualify for business financing and save money: Good business credit leads creditors to place trust in your business. This helps you qualify for business loans and business credit cards with the largest amounts of financing and the lowest interest rates.
  • Receive favorable terms from suppliers: Just as a good business credit score builds trust among lenders, suppliers are more likely to grant favorable payment options to companies with a good business credit score.
  • Avoid a possible personal credit check: If you have good business credit, lenders and suppliers may extend you credit without checking your personal credit history. Even if your personal credit isn’t that great, your business won’t suffer for it if financing can be extended based on your business’s creditworthiness.

For these reasons, it’s important always to maintain a good business credit score. If you have a bad credit score and negative information on your business credit report, it’s crucial to follow different tips to improve your score, such as using your credit responsibly.

6 Tips to Improve Your Business Credit Score

After establishing business credit, you should check your credit score frequently to find areas of improvement. You can improve your business credit score by separating your finances, paying creditors promptly, and lowering your credit utilization ratio. Once you’ve made those changes, you can see how those actions impact your business credit score the next time you check it.

1. Separate Business & Personal Finances

Separating your business and personal finances is key to maximizing your business credit score. How you handle your personal affairs shouldn’t impact your business credit. Having separate bank accounts for personal and business matters helps ensure that even if you have some unexpected financial event in your personal life, it won’t affect your business credit score.

2. Get a Small Business Credit Card

The best way to build business credit is to borrow money and pay it back promptly.

For example, getting a small business credit card and paying the balance every month is a good way to build a strong payment history. Late payments and a high credit utilization ratio will hurt your credit score, so it’s important to keep your balances close to $0.

As a bonus, you can earn cash back and points-based rewards when you use a business credit card. If you have a good personal credit score, then you may qualify for some of the best business credit cards. If you want to protect your personal credit, there are business credit cards that don’t report to personal credit bureaus.

3. Choose Lenders That Report to Business Credit Bureaus

Many small businesses have incomplete business credit histories because suppliers and lenders aren’t required to report payments to the business credit bureaus. If you have a positive payment history, it’s important to ask your current suppliers and creditors if they report to the business credit agencies.

If they don’t, ask them if they can start reporting. Many vendors will agree because there’s no cost to report to the credit bureaus. If possible, choose creditors and suppliers that report to at least one major business credit bureau, especially if you have a new business and want to build its credit history.

4. Pay Your Bills on Time or In Advance

This seems like a no-brainer, but to get your business credit as high as it can be, you have to pay every one of your suppliers and lenders on time. The bulk of your business credit score depends on how timely you pay back your debt obligations.

If you’ve paid on time, that’s great, but if you pay early, that is even better. If you can average 30 days early, you can increase your chances of receiving a higher business credit score. Vendors can leave comments on your business credit report, such as “prompt, pays early, pays slow, account sent to collections.”

5. Don’t Use Too Much Credit

The less credit you use out of the credit you have, the better it reflects on your score. This is called your credit utilization ratio, which measures how much of your total available credit compared to your credit card balance. For example, if you have a business credit card with a $30,000 credit limit but only use $3,000, your credit utilization ratio is 10%, which is low.

Aside from your payment history, your credit utilization is one of the biggest factors that impacts your business credit score. Creditors generally like to see your credit utilization ratio below 30% as long as it’s not 0%. When you use your credit responsibly, it shows creditors that you can manage your debt obligations.

6. Fix Errors on Your Business Credit Report

Errors on your business credit report, such as misreported payment information can skew and have a negative impact on your business credit. It’s a good rule of thumb to reconcile your business bank and credit card accounts with your trade lines as this is where businesses will usually find errors or fraud on their accounts.

Each business credit reporting agency has its own procedures for errors on a business credit report. You can submit disputes electronically to D&B and Experian. To dispute items on an Equifax report, log into your account, and contact customer service. With the right documentation, it usually takes about one month to fix an error on your business credit report.

Frequently Asked Questions (FAQs) About Business Credit

We covered a lot of steps on how to build business credit and improve your business credit score. Some questions are asked more often than others, and we address those here. If you have any other unanswered questions, please feel free to share them on our Small Business forum, and we’ll provide an answer.

How do I check my business credit score?

You can check your business credit score for free on Nav. It provides personal and business credit scores with a summarized credit report. If you’re looking to review a full credit report, it offers paid options for that too.

Can you get a business credit card with bad credit?

While it’s possible to qualify for a small business credit card with a 670 or higher credit score, we recommend having a 700 or higher score if you want to qualify for the best rates and largest credit lines. If you have bad credit, which is a score of less than 580, you can still qualify for a secured credit card or a prepaid business credit card.

Do I need good credit to start a business?

There are several requirements a startup must meet, such as your credit score, to qualify for an SBA loan. Generally, if you want to apply for an SBA loan, you will need a credit score of at least 680. There are alternatives with different requirements to help to fund your startup like credit card stacking.

Bottom Line

When you’re just starting a business, you may not pay much attention to your business credit. But as you expand and grow, establishing business credit is the key to many benefits, such as low-interest business financing and favorable payment terms from suppliers. Using the tips above, you can improve your score and reap these benefits.

About the Author

Jordan Tarver

Jordan Tarver is a financial analyst and staff writer at Fit Small Business focusing on credit cards and bank accounts. Jordan brings over two years of experience in account management and price analysis in the mortgage industry to Fit Small Business. He is also an accomplished self-published author.

@jordantarv

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