⏰ Estimated reading time: 7 minutes
Business credit is a way of assessing the financial strength of a business. A high business credit score can help you get better terms on a business loan, lower interest rates on business insurance, and better terms with suppliers.
As a new business, you need to establish business credit and grow it over time. Some steps to building business credit are quick and easy, like setting up an Employer Identification Number. Others take more patience, like demonstrating a long and responsible payment history.
Here is a step-by-step guide on how to gain and build business credit.
Find the business product that's right for your needs
Monitor your business credit score, manage your cash flow, and get hand-picked recommendations to help grow your business.
1. Register your business and get an EIN
For new business owners, the first step in establishing business credit is to register your business.
This process will vary depending on your business structure and where you live. Some states don't require sole proprietors to register if they're operating under their own name (though they may need a local business license). If you're forming an LLC, you'll likely need to register your business. You'll also need to apply for an EIN (Employer Identification Number) with the IRS. This business tax ID is required by the IRS for many businesses and may be needed for other important steps, like opening a business bank account.
2. Apply for business credit with Dun & Bradstreet
There are three main business credit reporting agencies: Experian, Equifax, and Dun & Bradstreet.
To get your business credit score from Dun & Bradstreet, you'll first need to apply for a DUNS number, which you can do for free on the Dun & Bradstreet website.[0] Lenders and other businesses often use this unique nine-digit number to check a company's credit profile and financial standing before agreeing to a deal. You also need a DUNS number if you're applying for federal grant funding.[0]
However, you don't have to apply for business credit with Experian or Equifax: These companies build their own company credit file based on borrowing information from lenders that report to these agencies, and they also pull information from public records, such as court documents.
3. Check your personal credit score
It's possible to build strong business credit even if you have a low personal credit score, but your personal history is often the key to getting financing to build your business credit faster.
Lenders typically check a personal credit report when evaluating applications for products like business loans and business credit cards. That's because lenders want to know whether a borrower can repay debts if a business is unable to repay them. Business owners with good credit may have financing options available to them even before they establish business credit. If your FICO score is below 630, a secured business credit card could be a way to start building your business credit while working on improving your personal credit.
In the meantime, look for non-debt solutions, such as establishing trade lines (more on this below), to establish business credit.
4. Open a business credit card
Because issuers base approval decisions on your personal credit information, you can get a business credit card even if you don't have an established business credit profile. Once you have the card, you can build your business credit by using it responsibly. Most small business cards report activity to business credit bureaus, so on-time payments and a low credit utilization ratio (less than 30% of your available credit) can help build your business credit score. On the other hand, late or late payments often have a negative impact on your business and personal credit scores.
Opening a business credit card early can help you start building credit sooner, setting you up for a longer credit history and a stronger score in the future.
5. Pay your creditors on time, and early if possible.
Payment history is the most important factor in determining your business credit score, and paying off your debts on time and in full will strengthen your business credit profile over time.
Paying on time is good, but paying early is even better: Dun & Bradstreet gives companies that pay early a higher Paydex score, which measures a company's payment history.
6. Establish business lines with suppliers
Suppliers often extend trade credit, which allows you to pay them days or weeks after you receive your inventory. This type of accounts payable relationship can boost your business credit score, provided that your supplier reports your payments to the business credit reporting agencies.
You can set up trade lines with smaller vendors, such as plumbing or office supply distributors. If these vendors don't report to the credit bureaus, you can add them as trade references on your account. Dun & Bradstreet will then follow up to collect the trade data.
7. Choose which lenders to report to the business credit bureaus
Small business loans can boost your business's credit if you make all payments on time, but not all lenders report to the business credit bureaus.
If you need a loan, ask potential lenders if the company reports your data to the credit bureaus. Weigh their answers against other factors, like interest rates, to find the right fit.
To better understand the unique needs of your business, we'll begin by completing a short survey.
Once you find your perfect match, our team will be happy to guide you through the next steps of the process.
8. Avoid Judgments and Foreclosures
Judgments, liens, and bankruptcy filings in a company's name can all have a negative impact on a company's credit score. Unpaid taxes and business debts can lead to liens, giving creditors the legal right to seize property to repay the debt. Unpaid debts can also ultimately lead to court decisions, or judgments, being issued against a company to collect on a debt.
These negative records on your business credit report can come back to haunt you. For example, Experian keeps bankruptcy records on your business credit report for nearly 10 years. Tax liens, judgments, and collections can be kept for almost seven years.[0]
9. Keep your information up to date with the three business credit reporting agencies
As with personal credit, it's wise to always check your business credit report to ensure all information is accurate. Check your business credit score with the three major business credit bureaus (Dun & Bradstreet, Experian, and Equifax). Then, ensure all lines of business are accounted for and report any errors, such as addresses or incorrect negative marks, to each of the business credit bureaus.
FAQ
What is business credit?
Business credit is a company's history of repaying its debts. A strong business credit history and business credit score show other organizations that you're a trustworthy borrower. This can help you get better interest rates and terms on business loans, lower business insurance premiums, and more.
How can you build business credit fast?
You can start building business credit right away by registering your business and applying for a business credit card. As your business grows, make sure you establish lines of business with suppliers and borrow from lenders who report your payments to the business credit bureaus.