Building your business credit: 5 steps to success
Editor's Note
In general, good personal credit is all you need to qualify for a wide variety of business credit cards. Yet, working to build your business credit history and a good business credit score can offer more benefits.
A good business credit score can help provide better access to commercial loans and lines of credit, lower interest rates and even cheaper business insurance premiums. Since your business credit report can be accessed by third parties (for a fee), your potential clients, suppliers or investors may also use it when deciding whether to do business with you.
Having solid business credit may also help you separate your personal and business finances. With these details in mind, here are five steps you can take to build business credit.
Related: The best no-annual-fee business credit cards
Register your business
To establish business credit, you must first register your business, set up a business credit profile and start building credit; some sole proprietors can also establish credit.
If you have an established business with vendors and suppliers, you may have completed some of the steps below. Otherwise, here's what you need to do before applying for business credit in your company name:
- Incorporate your business or form a limited liability company (LLC)
- Apply for a federal employer identification number (EIN), the nine-digit number the IRS uses to identify businesses for tax purposes
- Open a business bank account in your legal business name
- Ensure your business has consistent contact information, such as a phone number or email, linked to your business name
- Register with Dun & Bradstreet to get your free D-U-N-S number (Data Universal Numbering System). A nine-digit D-U-N-S number establishes your company's D&B credit file and serves as a business identifier
Related: Business cards vs. personal cards: Key differences
Apply for a business credit card
There are many good reasons to get a business credit card, including the desire to build your business credit profile. Business credit cards can also earn you rewards on everyday business expenses, and many of the top cards offer valuable welcome bonuses, too.
Whichever credit card you decide is best for your business, be sure to manage it responsibly. Avoiding late payments is essential. It's also important to keep your credit utilization as low as possible. A high balance-to-credit-limit ratio could hurt you with some business credit scoring models.
Related: How to get a business credit card
Open tradelines with vendors
Another way to establish business credit is to apply for trade credit from vendors and suppliers. Here's how to do it:
- Search for vendors and suppliers that offer net repayment terms, e.g., net 30, 60 or 90
- Confirm that the company reports activity to one or more of the major business credit bureaus (Dun & Bradstreet, Experian Business or Equifax Small Business)
- Apply for a tradeline
- Use your tradeline to purchase supplies, inventory or other materials on credit for your business
- Never pay late
Do note that you may need to establish several vendor tradelines to be eligible for a business credit score. To qualify for a Dun & Bradstreet Paydex score, for example, your business must have at least two supplier tradelines and three credit experiences on your credit report.
Related: Business line of credit vs. credit cards
Pay on time, preferably early
Payment history is the most important factor that influences your credit score — for both business and personal accounts. For personal credit scores, payment history accounts for 35% of your FICO score.
Paydex scores, on the other hand, measure a business' past payment performance. On-time payments, therefore, are a must if you want to earn and maintain a good credit score.
However, with some business credit scores, you might receive an added boost when you pay your credit obligations early. The only way to earn a perfect Paydex score of 100, for example, is to have a history of early payments on your Dun & Bradstreet credit report.
Related: How to avoid and reduce credit card interest
Monitor your business credit report
Just as it's important to monitor the health of your personal credit report and score, you also should keep an eye on your business credit information. Mistakes and fraud can happen despite the business credit bureaus' best efforts. And when errors appear on your business credit reports, they can harm your business credit scores.
Checking your business credit report won't directly impact your score, but inquiries can be visible to lenders and may influence lending decisions. However, there might be a cost associated with reviewing your business credit information, depending on how you access it. Here are a couple of resources you can use to check your business credit online:
- Dun & Bradstreet: CreditSignal provides free access to four of your Dun & Bradstreet scores for 14 days, then alerts you when your business credit scores or reports change. (Paid business credit-monitoring options are available from $15 per month)
- Nav: Nav provides free business credit-monitoring services and access to your Equifax business report and Experian Intelliscore summary. (Paid business credit-monitoring options are available from $49.99 per month)
You can also contact the other business credit bureaus to purchase copies of your business credit reports and scores.
If you discover inaccurate data on your business credit reports, you should dispute those items with the appropriate business credit bureau as soon as possible.
Related: Do business credit cards affect personal credit?
Bottom line
Credit score bureaus don't reveal the exact formulas that determine your business credit scores. However, we know that registering your business, applying for business credit cards and opening tradelines with vendors can help build your business credit. Once you've completed those steps, try to pay early (or at least on time) and periodically monitor your business credit report.
Related: 10 considerations for your small-business credit card strategy
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