As a consumer, good credit has the ability to improve your financial life. A good credit score can open doors for you—making it easier and more affordable to secure financing. The same concept is true in the business world. Good business credit could give your company an edge.
Featured Partner Offers
1
OnDeck
$5,000 to $250,000
Not disclosed
625
2
American Express Business Blueprint™
$2,000 to $250,000
Varies by loan term
of at least 660 FICO at the time of application
3
National Funding
$10,000 to $500,000
Buy rates start at 1.11%
600
What Is Business Credit?
Business credit is a term that describes several tools lenders, creditors and vendors use to measure the creditworthiness of your business. The business credit umbrella involves two terms:
- Business credit reports. These contain your company’s credit history. This information can show others how you have managed commercial credit obligations in the past.
- Business credit scores. These evaluate the information found on your business credit reports and predict future financial performance. For example, some business credit scores may predict the likelihood that your business will fail. Other business scores may analyze how likely your company is to default on its credit obligations.
Business Credit vs. Personal Credit
Both business credit and personal credit can help lenders, insurance providers and others evaluate risk. However, your business credit and personal credit are separate.
Personal credit reports contain information about how you manage credit obligations that you take out in your own name under your Social Security number. Business credit reports contain details about debts in your company’s name and the payment history on those accounts (on-time, late, etc.).
Although your business and personal credit reports are separate, small business owners need to proceed with caution where business credit obligations are concerned. It’s not unusual for commercial lenders and business credit card companies to require personal guarantees from business owners. In such scenarios, paying a business credit obligation late might damage both your personal and business credit scores.
How Does Business Credit Work?
Business credit is similar to personal credit in several ways. When your company opens a credit obligation in its name, the creditor may report the account to one or more of the business credit reporting agencies—Dun & Bradstreet (D&B), Experian and Equifax.
It’s worth noting that Experian and Equifax are also consumer credit reporting agencies. However, your consumer credit reports and business credit reports remain separate from each other. (Some accounts might appear on both types of credit reports, depending on lender credit reporting policies.)
Once a creditor reports an account to a business credit bureau, it should appear on your associated business credit report. If your company always pays the account on time or early, your business credit score may improve.
However, if your business makes late payments, its credit score might decline instead. A bad business credit score may make it challenging to qualify for affordable financing like business loans and business credit cards.
How to Build Your Business Credit in 6 Steps
The six steps below can help you learn how to build business credit from scratch.
1. Register Your Business and Get an EIN
To establish a business credit file, you’ll need to first register your business with your Secretary of State. During this process, you will choose your company’s name and business structure (LLC, corporation, etc.).
After registering your business, you’ll want to request an Employer Identification Number (EIN) from the IRS. In some ways, an EIN is like a Social Security number for your business. It’s a number that the government, business credit reporting agencies and others can use to identify your company.
Registering for an EIN is easy and free. To start the process, simply visit the IRS website to determine if you’re eligible and to submit an application.
2. Get a D-U-N-S number
Once you receive an EIN, you can contact D&B to register your business and request a D-U-N-S number. A D-U-N-S number is a nine-digit identification number that D&B uses to distinguish businesses from one another.
There is no charge to register your business with D&B. However, you might have to wait up to 30 days to receive your D-U-N-S number.
3. Open Accounts With Vendors That Report Payment History
The next step in building business credit is opening accounts with creditors that will report your company’s payment history to the business credit bureaus. But there’s a catch. You might find it difficult to qualify for business financing when your company has no previous credit history established.
Vendor accounts can be a good solution in this situation. Some vendors may be willing to offer your business net-30, net-60 or even net-90 day terms even with no existing credit history.
Just remember, opening a vendor account alone isn’t enough. You want to be sure to establish credit with suppliers who report payment history to one or more of the business credit reporting agencies.
4. Get a Business Credit Card
Another way to establish business credit is to open a business credit card with a company that reports account activity to the business credit bureaus. If you have a good personal credit score, qualifying for a business credit card may be easy, even as a startup.
Business credit cards can also help you to keep your personal and business expenses separate. And you might be able to find a business credit card that offers the benefit of earning travel rewards or cash back on your company’s everyday expenses.
5. Pay Creditors On Time or Early
Paying credit obligations on time is critical if you hope to build good business credit. Some business credit scores, such as D&B’s PAYDEX Score, are based entirely on your company’s payment history.
It can be difficult—sometimes impossible—to earn a good business credit score if your business credit report is littered with late payments. On the other hand, adding positive payment experiences to your business credit report could drive your business credit score upward.
6. Keep Your Credit Profile Free of Errors
Each major credit reporting agency maintains files on millions of consumers or businesses in the U.S. The sheer volume of data that creditors and credit bureaus exchange means there’s a lot of room for error. Business identity theft can exacerbate the problem.
When credit reporting mistakes happen, they can damage your credit score on either the business or personal side. Therefore, it’s important to review all of your credit reports often (both business and personal) to make sure they are error-free.
If you discover mistakes on a credit report, you should reach out to the appropriate credit bureau to file a dispute. On the personal side, the Fair Credit Reporting Act (FCRA) requires consumer credit bureaus to investigate such claims and either verify that the disputed information is accurate or remove it within 30 days or less. Business credit bureaus will investigate disputes about credit reporting accuracy as well, even though the FCRA doesn’t apply to these organizations.
Find the Best Small Business Loans of 2024
Frequently Asked Questions (FAQs)
How long does it take to build business credit?
Building a solid business credit profile can take time. If you’re aggressive in your approach, you might be able to establish some business credit history within a few months. However, it may take other business owners years to accomplish the same goal.
It’s also important to note that even if you establish business credit history rapidly, you might not be able to qualify for certain types of business loans yet. Many commercial lenders may require a company to be in business for a few years before being eligible for financing.
What is a good business credit score?
There is no single definition of a good business credit score for a couple of reasons. First, there are many different business credit scoring models, and each has its own credit score range.
Lenders also set their own qualification criteria where business credit scores are concerned. With U.S. Small Business Administration (SBA) loans, for example, you’ll need a minimum FICO Small Business Scoring Service (SBSS) score of 160. Online business lenders, by comparison, might not require you to have a business credit score at all—as long as your personal credit score is high enough to satisfy qualification requirements.
As a rule of thumb, the higher your business credit score, the better. Higher scores indicate lower risk. If your business appears to be a better credit risk, more lenders, creditors and vendors may be interested in working with it (and will perhaps even offer better rates in an effort to win your company’s business).
How do you establish business credit for the first time?
Once you register your business with your state, the IRS and D&B, you may be ready to open accounts in your company’s name. As a business without any established credit history, you may want to consider accounts that are easier to qualify for at first. Vendor accounts and business credit cards may fit into this category.
Be sure to establish accounts with lenders, creditors or vendors that report payment history to at least one of the major business credit bureaus. And, above all, it’s critical to pay your new business credit obligations on time every month.
