by Stormi Scott

How To Build Business Credit In 5 Simple Steps

Here's what you need to know about Establishing Credit For Your Business in 2024.

The term "business credit" might sound intimidating, but it doesn't have to. It is very similar to personal credit in that it is designed to reflect your company's perceived ability to pay back loans per the contracts they agree to.

The major credit report agencies are Dun & Bradstreet, Experian, and Equifax. FICO also scores small businesses with a rating system known as FICO SBSS.

Why Does Business Credit Matter?

If your company has strong business credit, it can affect not just your ability to get loans from traditional lenders but lines of credit with suppliers and trust from vendors.

Depending on the industry in which you are working, your potential customers might be more confident working with a company that has a good business credit score. Business credit scores are not private anyone with the know-how can check a company's credit score.

Remember, too, that the better your business credit score, the better interest rates will be. Having bad business credit can result in high-interest rates or not loan offers at all.

In short, bad business credit has the potential to limit your company's growth potential.

5 Simple Steps To Building Credit

The process by which a company builds credit is not rocket science: they need to open commercial credit accounts and pay their bills on time. However, several steps need to be completed before they can get commercial credit accounts in the first place. To make it much easier to get business credit, make sure your business is correctly set up.

Establish Your Business

If you have not yet done so, you should establish your business as a separate legal entity, such as an LLC or corporation. In addition to making it easier to establish business credit and gain financing, there are also tax advantages and protections to your personal property compared to working as a sole proprietor.

Request An EIN

Then request an Employer Identification Number (EIN) from the IRS. Think of this is as the equivalent of a Social Security Number for your company.

You will use it to identify your company when filling out applications for business financing, opening bank accounts, and paying taxes.

Opening a business bank account can help your company appear more credible to lenders because it clearly shows the cash flow in and out of your business.

Apply For Business Credit

Once you have established your company as its entity, you should begin to apply for business credit. If you have vendors who offer you products or services on credit, ask them to report your agreement and payments to business credit agencies.

Open at least one business credit card with a creditor that reports to all major credit reporting agencies. Maintain at least one open business card.

Having more than one open can be helpful, but make sure that you are not using the cards just to use them – carrying a high balance on a business credit card can affect your business credit score just as it would your personal credit score.

Establish Trade Lines

Many suppliers and vendors offer trade credit, allowing you to buy now and pay later. Establishing trade lines with suppliers and paying them on time can significantly boost your business credit score.

However, make sure that these vendors report your payments to business credit bureaus, such as Dun & Bradstreet or Experian Business.

Maintain Good Payment History

Consistently paying all your bills—such as business loans, credit card bills, rent, utilities, and supplier invoices—on time or early is one of the most effective ways to build your business credit. Late payments can negatively impact your score and damage your relationships with lenders and vendors.

It’s important to keep your financial obligations up to date helps avoid collections or legal actions, which can have a severely negative effect on your credit score.

While it's essential to establish credit by using it, keeping your debt levels low and managing your cash flow ensures that you won't struggle to meet payment obligations.

Monitor Your Credit Report

Like personal credit, business credit reports can contain errors or outdated information. Regularly checking your reports with credit bureaus like Dun & Bradstreet, Experian, and Equifax ensures that your business credit is accurate.

You’ll also stay updated on your score and can quickly spot and resolve any potential issues, such as errors or signs of fraud.

If you notice discrepancies or outdated information in your report, be sure to take care of it immediately. Contact the credit bureau and file a dispute to correct the issue. Ensuring your credit report is accurate will reflect the true strength of your credit.

By monitoring your business credit over time, you’ll be able to see how your efforts to build credit are paying off. It also helps you stay on track for long-term business financial goals.

How to Maintain Business Credit

Always pay your bills on time or ahead of time if you can. When choosing lenders or suppliers, choose those that report to credit bureaus. Avoid using more of your available credit than is necessary.

We recommend getting a business credit card to cover your company's everyday expenses. Not only can this potentially rack up some rewards for you, but it can also help maintain your business credit.

FAQs About Business Credit

Still have questions? We've got the answers.

What Factors Affect Business Credit Scores?

Numerous factors go into determining business credit scores. Though scoring models vary between rating systems, generally, you can expect your business credit score to be dependent on:

  • Your payment history
  • Your debt and debt usage
  • Age of credit history
  • The size of your company
  • Industry risk

As is true in consumer credit, the most critical factor will be your company's payment history.

What Types of Business Credit Are There?

There are many types of business credit. The four main categories are:

Installment accounts

You borrow a fixed amount of money and pay the lender a fixed payment over time.

Revolving accounts

You have access to borrow money up to a preset amount. Lines of credit and small business cards are two examples.

Charge cards

The most common example is an American Express card, which might appear to be a credit card but is not because, unlike a credit card, you are required to pay the total off each month.

Vendor accounts

Also known as net-30 accounts, these allow your company to pay for products and services after you have received them. Generally, they must be paid in 30 days, though there are net-90, net-60, and net-15 terms as well.

What is Included in a Business Credit Report?

You can expect the information included on a business credit report to vary somewhat based on which bureau you are looking at, but you should expect to see:

  • Basic information on your company include how many people you employ, your sales, who owns the companies, and information on any subsidiaries if they exist
  • Historical data that is relevant to your business
  • Registration details
  • A summary of any government activity
  • Industry classification and data
  • Operational data
  • Public filings
  • Payment history
  • Collections
  • The number of accounts reported

Does My Business Credit Affect My Personal Credit?

It is very rare that your business score and/or rating would affect your personal credit score.

Does My Personal Credit Have an Impact of My Business's Credit?

Sometimes. If you are a sole proprietor, you can expect that your personal credit will impact your business. Anytime you are asked for your Social Security number on a business credit application or lease, your personal credit will likely be reviewed and taken into consideration.

What Are the Biggest Mistakes Companies Make When Establishing Credit For A Business?

The most common mistake they make is to not structure their company correctly. This generally involves maintaining sole proprietorship instead of incorporating or establishing an LLC. Other common mistakes include:

  • Applying for personal credit cards believing that they are business credit cards. Avoid this by reading the fine print. Just because the card says it's a business card does not mean that it is.
  • Paying bills with personal checks or credit cards. Always pay with your business accounts.
  • Getting trade credit with vendors who do not report to business credit bureaus.
  • Not updating business information so that it matches the current state of their business. Review your business credit reports regularly to make sure they are up to date.
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