How To Build Business Credit

If you ever need a business loan or a supplier relationship, or if you just want to solidify and further establish your company’s credibility, you may want to learn how to build business credit.

Your business credit score is different from your personal credit score, but often just as important when it comes to your business’s reputation and ability to grow.

We’ll share what you need to know about how to establish, grow, and maintain a healthy business credit score and reputation for your business.

What Is A Business Credit Report?

In many ways, a business credit report is similar to a personal or individual credit report. It contains financial information tied to a business.

And it contains details on any loans, credit cards, or lines of credit taken out in a business name. A business credit report also contains payment histories for any credit obtained, balances owed, and other information.

However, there is additional information you will find in a business credit report that you won’t find in a personal credit report.

Business History And Ownership Chain

Business credit reports often contain information about a company’s history. They also share names and contact information for the business or any parent companies.

Other information might include when the company was established, the number of years the business has been in operation and the number of employees in the business.

Sales/Revenue Information

A business’s credit report may also include information about the company’s sales and/or revenue numbers for the most recently reported year. It can also include information about what type of product or services a business sells.

Note that sales and revenue numbers may or may not be up to date depending on the reporting agency and when the business last filed its tax return.

A Business Credit Score

As with personal credit files, a business credit file contains a business credit score. Whereas personal credit files have a range between 300 and 850, business credit files are different.

In most cases, they range from 0 to 100. The closer your company’s score is to 100, the better credit standing you are considered to have. As with personal credit scores, your business credit score is instrumental in a lender’s decision of whether or not to lend your company money.

Key Personnel Information

A business credit report will usually contain information about key personnel in a company as well. You can find the names of a company’s CEO, Treasurer, and more in a business credit report.

Again, note that this information may not be accurate if there have been recent personnel changes in a company.

Why You Need Business Credit

There are several reasons why you need to have business credit. Here are details on a few of those reasons.

Establish A Business Credit Score

As mentioned earlier, banks and lenders use a business credit score to decide whether or not they will lend money to a business.

While a business loan can be backed up by an owner’s personal credit, it’s a good idea to establish a credit score that is tied to your business’s name for borrowing purposes.

By doing so you create a business credit score and credit file that helps establish credibility for your business in its own name, giving your business its own reputation.

Establish Credibility For Your Business

In addition, having a business credit score will help establish credibility with your business. It can show potential clients and others looking for services or products you offer that you are indeed a legit business and not a fly-by-night operation.

Since a business credit report shows viewers details about company history, sales, and other factual information, it can help establish trustworthiness in your company.

Avoid Commingling Of Personal And Business Credit Files

Business owners often use their personal credit files to take out business loans. The problem with this is twofold:

Your business loans can hinder your personal credit file, making it look like you have far more personal debt than you do
Negative marks on either your business or personal credit accounts can hinder the other credit file.

In other words, you don’t want your personal credit file to reflect financial mishaps that belong to your business, and vice versa.

Separating the two via a business credit file will paint a more accurate picture of your personal finances and your business finances.

9 Steps To Take To Build Business Credit

Now that you know what a business credit file is and why it’s important to your business, let’s talk about steps you can take to begin building a business credit score and file.

Know that building a business credit score isn’t a fast process. If your business isn’t already listed with reporting agencies, or if the information on your report is minimal, it can take a year or two of work before your business credit report will show favorable information.

For that reason, it’s important to start building your business’s credit reputation as soon as possible.

1. Get an EIN For Your Business

An EIN is like a social security number for your business. To get one, contact the IRS here to apply. They are free and easy to get.

You’ll use your EIN every time you apply for any kind of credit under your business name. Note that while EINs are issued to sole proprietorships, it is still essential to build your business credit under a separate business name and entity.

And your business will need to hold status as a corporation, LLC, partnership, or other business entity in order to recognize it as a separate entity.

2. Register Your Business With Your State

The first step you need to take to build business credit is to register your business with the state it’s located in.

A sole proprietorship cannot have a business credit file and score — it will be commingled with your personal credit file. You need to register your business as a corporation of some sort, an LLC, or a partnership in order to build business credit with credit reporting agencies.

Registering your business with the state can be an easy and fairly inexpensive process depending on the type of business entity you choose.

However, some paperwork such as Articles of Incorporation may require legal assistance to create.

3. Establish a Business Phone Number

Establishing a separate business phone number is another way to help build business credit. Be sure to open your business phone number under your business name and use your EIN to do so if you can.

There are several companies that offer business phone numbers, and some even offer them for free. Check out your options and establish your business phone number to help add credibility to your business credit file.

4. Open a Business Checking and Savings Account

You’ll also want to open a separate business checking account and savings account using your EIN and business name. The benefits to doing so are threefold:

It’s another step to establish your business as a valid stand-alone entity
Business bank accounts can help you get business credit
You’ll be keeping your business and personal finances separate

You can open business checking and savings accounts at a bank or credit union near you. Or you can open business accounts at one of several online banks that provide business banking accounts.

5. Open A Business Credit Card

After you’ve opened your business checking and savings accounts, you can go about applying for a business credit card. The best business credit cards have low interest rates, low or nonexistent annual fees, and may include a rewards program.

Be sure to use your business card regularly and pay it off in full each month in order to help boost your business credit score. Use the card to purchase business supplies, pay for business lunches or other meetings, and pay for business-related travel expenses.

Using your business credit card regularly is just one more way to show that your business is legit and creditworthy.

6. Create A Business Credit File

Another step you can take in order to build business credit is to open a business credit file with one or more of the major credit reporting agencies.

You can call Experian, Equifax, or TransUnion to see if they can help you open a business credit file with them. Or you can call Dun & Bradstreet and ask if they have or will open a business credit file for you.

Dun & Bradstreet keeps track of business creditworthiness via their D-U-N-S number. Each business gets a unique nine-digit D-U-N-S number that identifies your business to potential clients and vendors.

Once you’ve created your business credit file, whether with Experian, Dun & Bradstreet or other credit reporting agencies, you can put your company on the map with business credit reporting agencies and begin to build a solid business credit reputation.

7. Open Trade Line Accounts

If possible, open trade credit accounts with vendors you do business with. Many vendors will offer 30, 60, or 90-day credit accounts for businesses in need of supplies.

Ask your vendor if they’ll offer you a trade credit account. Ask too if they report to any of the business credit reporting agencies such as Experian.

If they do, open your account and use it regularly to have regular reports regarding your business sent to business credit reporting agencies.

Although trade line reports are a bit different than traditional business loan or credit card reports, this is one more way you can work to build business credit.

8. Pay Your Bills On Time

Now that you’ve worked so hard to establish avenues to build business credit, it’s highly important that you be sure to pay all of your bills on time. Just one late payment can drop your business credit score.

You’ll want to ensure you’re working to build your business credit file with positive reports and not negative ones. If you have to, set up automatic billing in order to ensure you don’t miss any payments or make a late payment.

9. Monitor Your Business Credit File

Monitoring your business credit file is another step in learning how to build business credit. There are several ways you can monitor your business credit file. In fact, some companies even let you pull your business credit report for free.

As you monitor your business credit file, be sure to check it on a quarterly basis. Look to make sure the information contained in your business credit report is accurate.

If there are inaccuracies, call the reporting agency directly and work with them on correcting the inaccuracies. Be sure to monitor credit reports from multiple reporting agencies as well. This is important because some agencies might have different information than others.

And you may be wondering what a “good” business credit score is. A business credit score is considered “good” when it’s 75 or above (out of 100).

75 is the score that many lenders use as a benchmark when loaning money to a business.

It’s also important to note that your business credit follows you from one business to another. It’s based on your business name, but it’s also based on ownership and key personnel name.

That means you aren’t going to be able to start fresh from a business that fails. Or one that falls prey to bad operations decisions. This is just one more reason to treasure and care for your business credit report.

Conclusion

Building business credit is vitally important to your business on many levels. More than just a way to build your business’s reputation (which is also important), building business credit and creating a healthy business credit score can help you take your business to the next level.

Whether that means borrowing to grow your business, attracting investors, or establishing trade lines with vendors, learning how to build business credit is a viable way to help ensure future business success.

Start working on building — and maintaining — a good credit score, history, and reputation for yourself and your business today. Doing so will give you a firm foundation upon which you can build a successful and reputable business.