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How to Build Business Credit in 5 Easy Steps

August 16, 2023 By
Marianne Antonius
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A good consumer credit score is always a financial boon, but a solid business credit score is far more important for the success of your business.

It can help you get better business financing terms, lower insurance premiums, and more favorable supplier agreements. Good business credit also helps you create a healthy separation between your business and personal finances.

Since business and personal credit reports rely on separate credit bureaus, you must build business credit from scratch. This task may seem complicated, but we'll cover all the information you need to establish good business credit effectively.

Understanding your business credit score

A business credit score is a numerical indication of a company’s creditworthiness. Lenders, suppliers, and other businesses use your company’s business credit score to determine whether to do business with you.

The three major business credit bureaus are Dun & Bradstreet, Equifax, and Experian. Although they use slightly different methods, they generally base their scores on factors like:

  • Payment history to suppliers and lenders
  • Credit amount and utilization
  • Company type, size, and age
  • Tax liens, judgments, or bankruptcies

Unlike the 300 to 850 range for consumer credit scores, the business credit bureaus typically use a 0 to 100 range for business credit reports.

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How to build business credit fast

Although the process for building business credit is different from personal credit, you can build your business credit score without the help of a financial expert. The following five steps will help you successfully build business credit.

1. Register your small business

The first step to separating your business and personal finances is registering your small business as a Limited Liability Company (LLC), Limited Liability Partnership (LLP), or corporation. After you complete this step, your company can conduct business as a separate legal entity and establish its business credit profile.

You can register your company as a sole proprietorship, but this business type doesn’t separate your personal and business finances. As a result, all financial activities will reflect on your non-business accounts and credit reports. The business registration process varies according to where you live, so be sure to verify your business structure choice in the SBA’s Business Guide.

2. Obtain an employer identification number (EIN)

A federal employer identification number (EIN) functions for businesses like a Social Security number does for employees. This IRS-assigned nine-digit number allows you to enter your small business into legal and financial arrangements as a separate entity.

Your EIN also serves as your company’s identifier for credit-building and tax purposes. Plus, by adding another degree of separation between your business and personal finances, you receive more protection from liabilities and actions taken against your business.

3. Open a business bank account

Opening a business bank account is a major step toward separating your business and personal transactions. After opening the account with your federal tax ID, your business banking activity will become the primary source for business credit and funding evaluations. In addition, it helps streamline transactions between vendors or customers.

4. Apply for a business credit card

A business credit card is one of the most effective ways of building business credit. Since most business credit card issuers regularly report to the business credit card bureaus, your consistent on-time monthly payments and low credit utilization can help boost your business credit score. You can increase your score even more quickly if you pay off the balance each month.

5. Monitor your business credit reports

An impressive business credit report can lead to credit approval for higher amounts, lower interest rates, and more agreeable terms on loans and lines of credit. These potential benefits highlight why you should regularly review your business credit reports from all three major credit reporting bureaus.

Fortunately, the business credit bureaus allow you to update basic information and contact them to make changes. Take time to ensure these agencies have accurate information about your business.

Pitfalls to avoid when building business credit

Building business credit is a straightforward process, but you should be aware of potential pitfalls that could hinder your progress. Here are three missteps you should avoid.

  • Choosing the wrong business structure

Although operating as a sole proprietorship is simple and paperwork free, it leaves you liable for legal judgments against your business. This business structure can also hinder your company’s ability to get funding.

  • Paying company bills with personal checks or credit cards

To ensure your business’s financial performance gets recorded, you should pay all business expenses with business checks and credit cards.

  • Using trade credit from companies that don’t report to the major business credit bureaus

Trade credit is more accessible and convenient than a traditional business loan. However, non-reporting vendors deny your company an opportunity to build business credit.

Build a solid business credit foundation

Building business credit can lead to business and financial benefits that are unavailable via personal credit. Plus, it allows you to better separate your business and personal affairs.

By taking charge of your business credit, you can put your small business in a better position for growth and success. When you're ready to open a business bank account, visit our business banking page to learn more about our options.