How to build business credit: 7 steps

Building business credit is important to running a business because it gives lenders and creditors a financial picture of how your business handles cash. He can rely on personal credit to start a new business. But an established business must be able to stand apart from the owner’s finances and expand credit opportunities.

Take these steps to build a strong business credit history.

1. Register your business

Legally, you can start a business under your own name. However, registering your business has many benefits, including tax deductions and protection from personal liability for business dealings. You may also need to show business incorporation documents when applying for a business bank account, credit card or loan.

According to the Small Business Administration, you need to register as a business with your state. Some cities or counties require you to register your business or issue the appropriate license for your type of business. S-corporations must file IRS Form 2553 to disclose their S-corp status.

Decide which of these businesses makes the most sense for you.

2. Register the DUNS number

Although not required, every business looking to build its business credit score should obtain a Data Universal Number System (DUNS or DUNS number) from Dunn & Bradstreet. This is because Dunn & Bradstreet is the most popular business credit bureau among lenders and suppliers.

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Applying for a DUNS number opens a credit file with the bureau, allowing you to start building your Paydex score. You may be asked for your DUNS number when you get a loan or become a U.S. or international supplier.

Do you need an EIN number?

If you want to build business credit, you’ll need an Employer Identification Number (EIN) because lenders and creditors will ask for your EIN on applications. An EIN is also used to file federal taxes and apply for business licenses.

Under the SBA, you are required to obtain an EIN in certain circumstances, such as having employees or operating as a partnership.

Some small businesses, such as sole proprietorships or single member LLCs, can use their Social Security number. But doing so depends on your personal credit history rather than your business credit score.

3. Use supplier or vendor credit.

Many sellers or suppliers will allow you to pay 30, 60 or 90 days after you buy their supplies – the commercial version of buy now, pay later. These are called net 30, net 60 or net 90 sellers. Supplier credit accounts are a great way to build business credit if you don’t have much credit history and don’t qualify for other types of credit.

But in order to build credit, you need to make sure that the providers have accurately reported your payment history to one or more credit bureaus. Sellers are not required to do so.

4. Apply for a business credit card

Business credit cards not only help you build credit, but they also come with many other benefits, such as:

• 0% introductory APRs. You can get business credit cards with a 0 percent introductory APR. This helps you to borrow money for a short term like 12 or 18 months without interest.

• Bonuses and rewards. Many business cards offer cash back, points or miles if you spend a lot of money within a certain period of time. Many continue to build rewards with each purchase, although the rewards structure is different for each card.

• Payment grace period. While not required, most card issuers offer a grace period of at least 21 days from the date of your statement to the expiration date.

• Credit reporting. Your payment history will be reported to the business credit bureaus: Dunn & Bradstreet, Equifax and Experian.

• Accessible to beginners. Business credit cards are another type of credit that is easily available with little-to-no credit history.

5. Build a positive payment history

Your payment history is one of the most important factors in building your credit score. Lenders and creditors want to see if you can pay your bills and debts consistently and on time. They also want a long history of making timely payments.

If possible, set up automatic payments to ensure all credit cards, loans, and vendor accounts are paid by their due dates.

Understanding of bank account

Your business credit may affect your personal credit if your business card issuer chooses to report your payment history to the consumer credit bureaus. For example, your business card issuer may report high balances or missed payments to consumer credit bureaus, saving your personal credit score. This is another reason to pursue business accounts.

6. Reduce revolving debt

Credit utilization, or how much available credit you use, is another big factor in your business credit score. For this reason, you may want to avoid maxing out your business credit card or business line of credit.

A good rule of thumb is to keep your credit utilization around 30% of your available credit. If you regularly need more than this amount, you can ask to raise your credit limit to keep the ratio low.

7. Monitor your credit report

As you work on building credit, check your business credit report to see how your actions affect your credit. Depending on which credit bureau you ask from, you can see your history from different credit reports, changes in your credit over time, and scores that assess your business’s risk of failure. Overall results are calculated from:

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Building business credit takes some basic work to establish your business reputation and establish sources of credit. At first, your options may be limited to business credit cards, business loans, or personal loans.

But if you’re consistent with your payments and monitor your credit report, your business may be able to get a loan at prime interest rates and terms in the future.

Frequently asked questions

• Are personal loans important for business owners?

  Personal and business credit are two separate entities and sometimes overlap. This is what happens when you’re a sole proprietor: Your personal credit greatly affects your business credit, and vice versa. Generally, sole proprietors can get approved for a business credit card because eligibility is based on your personal credit history. The card will show up on your consumer credit reports, but treat it responsibly. If you don’t and you get delinquent or denied, your credit will suffer and the lender may take legal action against you.

• What is the difference between an EIN and a DUNS number?

  An EIN is issued by the IRS and is used for tax purposes. The DUNS number is issued by the company Dun & Bradstreet and is used to build your company’s business credit profile.

• How do I use my EIN to apply for business credit?

  When you apply for business credit, the application will ask you to provide your employer identification number or social security number. You can enter your EIN number when prompted in the space provided.

• Can I use my DUNS number instead of an EIN?

  In a loan application, the DUNS number cannot replace the EE. Your EIN identifies your business for tax purposes, while your DUNS number is associated with your Dun & Bradstreet Paydex score.

• What is a good business credit score?

  It depends on the office – each of the three commercial credit bureaus will issue a number of points, each of which has its own scale. Experian Business Credit Scores range from a low of 1 to a high of 100. The average business credit score is 62. SBSS scores range from 1 to 300, and many SBA lenders place scores in the low 160s. In contrast, Dunn and Bradstreet delinquency scores range from 1 to 5, with a lower score indicating a lower risk of default or bankruptcy.

• Do I need business credit to qualify for a small business loan?

  Many business loan applications consider your personal credit history instead of your business credit. If you apply for financing through the Small Business Administration or a traditional bank, you may need to build business credit first to ensure financial stability.