Building business credit is key for any business to grow. It’s like personal credit scores but for businesses. Lenders and suppliers check it to see if you’re financially stable.
This guide will show you how to start building business credit. You’ll learn important steps for your business finance.
What is business credit?
Business credit shows if a company can handle its debts. It’s like your personal credit score but for businesses. It shows how well a business has borrowed and paid back money.
Pay bills on time and avoid defaults to improve your business credit. This way, your business can grow without hurting your personal credit.
A good business credit score can get you better loans and credit cards. You might get lower interest rates and more flexible payment plans.
Credit bureaus like Equifax and Dun & Bradstreet check your business credit. They look at how you’ve paid bills, your debts, and your trade relationships.
Metrics like Dun & Bradstreet’s PAYDEX® score help lenders see your financial health. So, having good business credit is very valuable.
Why is business credit important?
Good business credit opens doors to loans and credit cards at better rates. It also keeps your personal credit safe from business risks.
It lets you invest in your business without hurting your cash flow. This means you can hire more staff, market better, or grow your business.
Also, good credit builds trust with lenders and suppliers. This helps your business grow and succeed.
7 steps to build business credit.
1. Establish your business as a legal entity.
First, make your business a legal entity like an LLC or corporation. This separates your business credit from your personal credit.
It protects your personal finances and helps establish credit in your business’s name. Sole proprietors can also build credit, but it’s harder without a legal entity.
2. Obtain an Employer Identification Number (EIN).
An EIN is like a Social Security number for your business. It’s a nine-digit number from the IRS.
You need an EIN for separate business credit. Your business needs an EIN for taxes, business bank accounts, loans, and working with big vendors.
With your EIN, creditors can track your business’s income and payments. For sole proprietors, an EIN helps separate business and personal credit.
3. Request a Dun & Bradstreet number.
Getting a D-U-N-S® number from Dun & Bradstreet is key for business credit. This unique number is vital for tracking your business credit profile. A D-U-N-S® number lets vendors and creditors see your financial health and creditworthiness.
Experian and Equifax create business credit profiles automatically. But, Dun & Bradstreet needs an application for a D-U-N-S® number. Many find this step worth it, as it gives insights into your financial health. It also lets vendors report positive payments to boost your credit.
4. Open a business bank account.
Opening a business bank account is crucial for separating personal and business finances. It adds credibility and ensures accurate financial records. This is important for taxes, loans, and presenting a professional image.
Use your business account for all business expenses. This includes bills and credit card balances. Responsible use of a business credit card can build a strong credit profile over time.
5. Apply for business credit.
Using business funding options like a business credit card or a business line of credit can start your business credit journey.
Look for lenders or card issuers that report to major business credit bureaus. Paying on time from your business bank account builds a strong credit history.
Setting up lines of credit with vendors can also help. Many offer net-30 accounts for delayed payments. Encouraging vendors to report your payments can strengthen your credit profile.
6. Establish tradelines with suppliers.
Setting up tradelines with suppliers, like net-30 accounts, builds credit by allowing delayed payments. Opening credit accounts with vendors shows you can manage payments responsibly. These relationships improve your cash flow and credit history if vendors report payments.
If vendors don’t report to credit bureaus, list them as trade references with Dun & Bradstreet. Building relationships with multiple suppliers can improve your credit standing over time.
7. Monitor your business credit report.
Business credit needs regular monitoring. Regularly checking your credit report keeps you informed and allows quick action on errors. Watch reports from Equifax, Experian, and Dun & Bradstreet.
Keeping a high business credit rating requires constant attention and quick action on issues. Regularly tracking your financial health protects your borrowing potential and supports long-term success.
How fast can a business build credit?
Building business credit takes time, but there are ways to speed it up. Paying bills on time and using credit wisely can help. Also, getting credit from different sources can make a difference.
It’s important to keep an eye on your business credit. Knowing how to check and understand your report is key.
What is a good business credit score?
Business credit scores range from 0 to 100. A score above 80 from Dun & Bradstreet or above 75 from Experian is good. Lenders use these scores to decide if they’ll give you credit.
How to check and monitor business credit scores.
To check your business credit, use companies like Dun & Bradstreet, Experian, or Equifax. Dun & Bradstreet focuses on business credit. You can get detailed reports online, often for a fee.
These agencies offer different services. They help you stay updated on your credit. Checking your credit yourself can keep your score strong and show you how to improve.
Is business credit the same as personal credit?
Business and personal credit are similar but different. Business credit is based on a company’s history and performance. Personal credit is based on an individual’s history.
At first, lenders might look at your personal credit when checking your business. If you have fair personal credit but no business credit, you might look for a no credit check business loan.
How to leverage personal credit to build business credit.
If your business is new and you don’t have business credit, use your personal credit wisely. Open a business credit card linked to your personal account. Paying on time and keeping your balance low will help your business credit.
Tips for maintaining a good credit profile.
Keeping good business credit is like keeping good personal credit. It takes consistency and discipline. Here are some tips:
Pay on time. Timely payments are key to building strong credit. Avoid late payments to keep your score high.
Avoid too much debt. Keep your debt low and your credit utilization ratio below 30%.
Check reports often. Make sure your credit reports are accurate and correct any errors quickly.
Build trade relationships. Work with many suppliers who report payments to credit bureaus.
By following these tips, you can protect your credit score and open up new opportunities for your business. Remember, time in business and your industry also matter for getting financing.
Frequently Asked Questions
Does business credit affect personal credit?
Business and personal credit are usually separate. But, they can overlap in certain situations. If you use personal guarantees for business loans, missed payments can hurt your personal credit.
For sole proprietors or small business owners, personal and business finances can be closely tied. It’s important to keep your business credit separate from your personal to protect your finances.
How long does it take to build business credit?
Building business credit takes time and consistency. The exact timeline for building business credit depends on several factors. These include registering your business, opening accounts with vendors, and using credit responsibly.
The sooner you start building good credit habits, the faster you’ll see results.
What credit score does an LLC start with?
An LLC doesn’t have an automatic business credit score. It’s built over time through financial activities and reporting. Once you open accounts and vendors report your payment history, your LLC will start building a credit profile.
This process lets credit bureaus create a score based on your LLC’s performance. There’s no fixed starting point until you start making financial moves. This is why managing your finances well from the start is crucial.
The Bottom Line
Building and keeping business credit is a long-term effort. But the rewards, like better financing and business growth, make it worth it.
Author by Vitas Changsao
