One of the major things you can do to help your company’s financial future is establish and build your business credit. With good credit, you can more easily qualify for critical funding you might need.
Business credit is a record of a company’s financial responsibility. In large part, it gauges how likely a company is to repay borrowed money. Because of this, lenders will often consider business credit as one of the determining factors when making application decisions and setting interest rates.
Steps to establish business credit
Establishing business credit involves a few steps, but it can be relatively simple. Follow these instructions and you’ll be well on your way to getting your business credit scores.
1. Establish your business entity and essential details
The first step to getting your business credit is to legally separate your personal and business finances. You can do this by establishing a limited liability company (LLC), a C corporation or an S corporation. If you’re not sure which to choose, read our guide on how to settle on the right business structure.
After you’ve incorporated, it’s time to get a few more details squared away before you can start building business credit:
Open a bank account. You’ll need to get a business checking account and make sure you pay all business expenses from this account. Some banks offer bonuses when you merge your credit card rewards with a business checking or savings account.
Get a business address and phone number. This will help you solidify your business as a separate entity. To establish your business credit, you’ll want your company to be listed in directories such as the Better Business Bureau and Yellow Pages. And with a business phone number, you’ll establish a trade credit relationship with your phone line, which will be reported to the credit bureaus.
2. Open business credit files
There are three main commercial credit bureaus: Dun & Bradstreet, Experian and Equifax. Each evaluates your business credit by compiling information from legal filings, public records and creditors who work with you. Then, they give you numerical business credit scores — typically 0 to 100, with the higher end meaning higher creditworthiness.
You’ll want to establish credit files with each of them:
For Dun & Bradstreet: Register for a free D-U-N-S number, which is a nine-digit identifier that helps lenders and suppliers gauge your business’ financial stability. It’s what identifies your Dun & Bradstreet business credit file.
For Experian and Equifax: Simply open accounts with creditors that report to these bureaus. In time, your credit files will appear automatically.
3. Start building business credit
Here are two of the easiest and most common ways to start building business credit:
Open a business credit card. Get a credit card that reports to the business credit agencies and start making payments. This is one of the major steps in improving your business credit. Consider a business card for no-credit applicants if you have a limited credit history.
Establish tradelines with vendors and suppliers. Tradelines are credit accounts on your credit report, and they’re important because they give a history of your credit management. Work with your suppliers and vendors to establish relationships and build your credit. You can also ask them to report your payments to a business credit bureau. Dun & Bradstreet needs at least three tradelines to give you a PAYDEX business credit score.
Net-30 accounts — that is, those that give you 30 days to pay off purchases — are often good avenues to establish tradelines. These include vendors such as Uline, Summa Office Supplies, Quill, Grainger and Crown Office Supplies.
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4. Pay on time and watch your credit utilization ratio
Each credit agency evaluates a different mix of factors when determining your credit score. However, one of the easiest ways to consistently grow your score is by making payments on time.
Late payments negatively affect your business credit. To avoid that, set alerts or automate your credit card payments. If you consistently pay early and in full, Dun & Bradstreet will likely assign you a perfect score.
The balances you carry on your business credit cards can also affect your credit score. Keep an eye on your credit utilization ratio — that is, your balances relative to your total credit. The higher the ratio is, the higher risk credit agencies will assign to you defaulting on your debt. It’s generally recommended to keep your credit utilization ratio under 25% to 30%.
5. Borrow from lenders that report to credit bureaus
If you’ve got a perfect payment history, working with lenders that report to business credit bureaus can further help you establish your business credit. Before applying or a loan, check with the lender that your payment history will be reported to the credit agencies.
Also, try not to borrow more than you can pay off. Same goes for your credit card limit — don’t use it all at once if you can’t pay it off. With timely payments and responsible borrowing practices, your business credit will improve.
6. Maintain your business information and public record
Open new credit accounts responsibly, and pay off what you owe. Update your information with all three of the largest business credit bureaus since you don’t know which bureau a lender will pull your credit from.
Aside from payment history, credit bureaus keep public records, such as bankruptcies, liens and judgments. These records factor into your business scores as well, and can stain your business credit for up to 10 years. Avoid them as much as possible and you’ll help protect your fast-growing track record.
Compare business credit cards
One way to establish business credit is by opening a business credit card and making on-time payments. This shows creditors that you are likely a low-risk borrower, and they may be more willing to loan to you in the future. Below you can compare some of the top business credit cards on the market.
How does a business credit card affect business credit?
Most of your credit-building endeavors will revolve around paying your suppliers and vendors, paying your bills and borrowing from lenders. The easiest and most convenient way to manage this is to get a good credit card for your business needs.
With most business credit cards, you can:
Automate your payments
Set payment alerts
Manage and track your spending and the spending of your employees
Some business credit cards offer specific perks and features that can also help you build your credit, such as:
A 0% intro APR period on balance transfers, purchases or both
Payment flexibility with up to a 60-day grace period
Can a business credit card damage my business credit?
If you’re not careful, you can damage your business credit with your business credit card. This can happen when you:
Fail to make timely payments.
Default on your business credit card.
Carry too much debt.
Apply for too many business credit cards in a short period of time.
There are multiple agencies that keep your credit score, but the largest three are:
Dun & Bradstreet. In addition to the business score — which they call PAYDEX score — Dun & Bradstreet includes a credit recommendation to the lender. To get the PAYDEX score, you must have a D-U-N-S number, which is free to get at the bureau’s website.
Equifax. This bureau offers three scores to the lender: the Payment Index, Business Credit Risk and Business Failure Risk Scores. The first measures your payment history. The next two evaluate the risk of your company and its chance of failing within the next year.
Experian. With this credit agency, your company only gets one business score, which ranges from 0 to 100. The higher your score, the better your company will look in the eyes of the lender.
Why is it important to have good business credit?
Your business credit score is an important track record, and it’s helpful to keep it high. With good business credit you’ll have:
An easier time with approvals. Your business credit score is one of the key factors that determine whether you’ll be approved. When you have a good credit score, you’ll have many lenders who are willing to work with you. This means you have many funding options.
Better payment terms with vendors and suppliers. A good credit score gives you leverage, as it means you’re a viable customer for many vendors and suppliers. You can use this track record to negotiate advantageous payment terms, giving your business better cash flow.
Lower interest rates from lenders and banks. Interest rates reflect the risk inherent in lending to individuals or businesses. Basically, lenders want to know there’s a good chance they’ll be repaid — and the lower that chance, the more they’ll want to be compensated for the risk. Because a good credit score implies your business is more likely to repay borrowed money, vendors and suppliers are more comfortable charging you lower rates.
Higher credit limits when applying for a credit card or loan. You’ll have more access to capital, as lenders feel more comfortable entrusting you with larger sums of money. This increased access to money can help you grow your business faster.
What is considered a good business credit score?
Different credit agencies define a good business credit score differently, but the rule of thumb is a higher score means higher creditworthiness. Here’s some information about what scores to aim for:
Dun & Bradstreet’s PAYDEX score ranges from 0 to 100. According to the agency, a score of 70 or above is considered good. Scores above this level point to relatively quick repayment of debt.
Equifax’s Payment Index score ranges from 0 to 100. If you consistently make payments on time, your Payment Index score will be 90 and above. Keep in mind that Equifax uses two other business scores as well — Business Credit Risk Score and Business Failure Score — which don’t use the same numerical range.
Experian’s Intelliscore ranges from 0 to 100. A score of 76 and above is good, and it means your business is a low risk to lenders.
How do I check my business credit rating?
To check your business credit rating, you need to:
Visit one of the business credit bureaus’ websites.
Find your company. On the Dun & Bradstreet website, you need to provide your company’s D-U-N-S number, while on Experian and Equifax you only need to provide your business name and location.
Purchase the report.
The Experian basic report costs $39.95
The Dun & Bradstreet basic report costs $61.99
The Equifax basic report costs $99.99
Why you should monitor your business’s credit reports
Your business credit is one of the primary factors that banks and lenders take into consideration. That’s why you need to constantly keep an eye out for errors and fraudulent activity.
Check if the same error is shown on all three credit bureau reports.
Next, check if the data is accurate or if it’s indeed an error.
If it is an error, reach out to the bureaus that list it and explain the issue.
Provide proof that supports your claim.
How to improve a low business credit score
Get your credit reports. The first thing to do if you have a low business credit score is to get a handle on where you’re starting from. Contact the three major business credit agencies. Then request your credit reports from these bureaus. Unfortunately, you’ll have to pay fees for this, but these may be well worth paying for important information.
Check your reports for any errors or hard inquiries that shouldn’t be present. Both of these can have a drag on your credit score. Contact your creditors and the credit agencies to get erroneous information removed.
Pay attention to the basics. Focus on two main strategies for fixing your credit: consistently paying your bills on time and keeping your credit utilization low. These factors have an outsize influence on your credit score because they indicate to lenders how likely you are to default on debt. Keep in mind you can improve your credit utilization by getting credit limit increases and opening new lines of credit — not just by decreasing your balances.
Your business credit can determine whether you’ll get approved for a loan or credit card for your company as well as its interest rate. This is why you should start building your credit as soon as you start your company and continually strive to improve it. If you notice something’s amiss, contact the credit agencies and ask that the error be corrected.
If you follow these steps for building and establishing your credit — including applying for the market’s top business credit cards — you’ll likely be able to score lower interest rates and better loan terms for your business.
Frequently asked questions
Not necessarily. Each credit agency needs a set of information about your business before it can start producing a credit score. Also, you need tradelines that report your payment history to the relevant bureaus.
Yes. Credit card issuers will almost always check your personal credit when deciding whether to approve you, as they’ll typically require a personal guarantee for your debt.
No. It’s actually public, and anyone can check it. For example, creditors and vendors might check your credit report when deciding whether to do business with you.
Kliment Dukovski is a credit cards and investments writer. He's written over 600 articles to help readers find and compare the best credit cards. Kliment has also written on money transfers, home loans and more. Previously, he ghostwrote guides and articles on foreign exchange, stock market trading and cryptocurrencies.
A business line of credit is a useful tool. But as a startup, you may not qualify for the best interest rates with most lenders. Explore your options — and alternatives — for flexible funding as a new business.
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