How to Build Business Credit in 7 Steps

I’ll walk you through how to build business credit, from establishing your business and getting a DUNS Data Universal Numbering System number, to establishing a credit line, and to monitoring your credit report. Building business credit can help lower your borrowing costs, reduce insurance rates, and build stronger relationships with your vendors.

The image below shows seven steps and how they all work together to help a business establish credit, even if you’re starting from scratch.

Step 1: Establish Your Business Formally

You’ll need to take the time to decide how you want to structure your business, and this choice will hinge on the basic layout you’ve established. For some businesses, a corporation is the right fit, while for others, a limited liability company (LLC) is the better choice.

Select a Corporate Structure

One of the most important things you’ll do when you form your business is to separate your personal credit from your business credit. Establishing a corporation or an LLC will legally do this for you. This provides a measure of protection from personal liability for the actions of the business.

The dynamics of every business are different. One choice will likely be the better fit than the other, and you may make this choice based on the answers to a few questions.

• Do you want to remain small?
• Will you eventually seek investor capital for business growth?
• Do you wish to have additional owners in your business?
• Will you ever issue stock?

Once you’ve made a decision, consult with a legal entity to prepare the business documents. For a corporation, you will obtain the Articles of Incorporation or certificate of incorporation. For an LLC, you will need Articles of Organization or a certificate of Organization.

Obtain an EIN

Your business will have its own identity as soon as you get an EIN. This is the same concept we think of with our Social Security number. It serves as a unique identifier for us as individuals. An EIN will be required for most of your business transactions, including getting a small business loan to help establish your business credit. You will also need your EIN to open a business bank account or to set up a credit line with your vendors.

Step 2: Open a Business Bank Account

Here is a basic list of the items you will need to open a business bank account:

• Name of the organization
• Business address
• Phone number
• Name of the owner or CEO and any account signers
• Legal paperwork showing the structure of the organization
• Year the organization was established
• The primary type of business

The bank will need the information you’ve compiled in your legal paperwork. It may ask you

questions regarding the members’ names, who the registered owners are, and who the beneficial owner is. Sometimes, it will require copies of these documents, so it’s best to have them available when opening your account.

Opening a business bank account will ensure there is no cross-over with any of your personal and business funding. It’s important to maintain this separation to ensure you remain under the umbrella of liability protection offered by an LLC or a corporation. If you mix the funds, your creditors may argue that you’re personally liable for any company debts or damages.

Step 3: Get a DUNS Number

A DUNS number is obtained from Dun & Bradstreet (D&B), which collects public business and industry information, payment information, payment history, and financial performance information. It takes all this data to generate three individual credit scores.

To apply for a DUNS number, you can visit D&B. The number is free, but there’s also an option to pay a fee to expedite the process. This is a fairly straightforward process. I recently assisted a business to get a DUNS number. Its site is very user-friendly, and the process was easy to follow.

Here is a list of some required information to apply for a DUNS number:

• Name of the organization
• Business address
• Phone number
• Name of the owner or CEO
• Legal paperwork showing the structure of the organization
• Year the organization was established
• The primary type of business
• Total number of full and part-time employees
• Primary product or service

Once you obtain your DUNS number, you will need to have at least three trade references so that D&B can begin reporting. This is a great way to build business credit.

Once you get your credit established with D&B, it’s helpful to get a copy of your D&B credit report so that you can see exactly what lending organizations are seeing. This insight is helpful so that you will know if any improvements or adjustments are needed.

Equifax & Experian

Establishing business credit can also be done using major credit bureaus like Equifax and Experian. They obtain information using Secretary of State records when new businesses are created. They also offer demographic scoring and allow businesses to self-report. It’s helpful to get a copy of your business credit report from these bureaus to keep everything up to date and to ensure you understand your score.

Step 4: Obtain a Business Credit Card

At this point in the journey, you’ve done the necessary things to establish your business identity in the credit world. Now it’s time to put your plan into action. The next step is to apply for a small business credit card. There are many different business credit cards to choose from, with some offering cash-back rewards and others with point-based rewards.

Since this will be your first actual credit account, many credit card companies take your personal credit score into consideration. If you have at least a 670 score, you may qualify for a card, even without a business credit history. Once you receive your card, a good rule of thumb is to pay the balance in full every month to establish a strong payment history.

Step 5: Establish a Line of Credit with Lenders and Vendors

A helpful tool to keep working capital flowing through your business is to establish a business line of credit with a lender. This loan type allows you to draw from the line as needed, pay monthly payments, or pay the line off in full.

Establishing a credit line:

• Gives you the flexibility to bend and shift as the market changes
• Is helpful in obtaining the necessary equipment or products needed to run your day-to-day business activities
• Is an excellent way of building business credit fast, as credit lines carry a good bit of weight when calculating your credit score
• Enables you to build a good relationship with your bank
• Allows you to make a capital injection into your business at any time without applying for a new loan
• Helps business owners cover short-term cash flow gaps
• Is flexible with draw amounts, as you only take a draw for the amount you need (the full line does not have to be disbursed at closing)

Unlike installment loans, paying it off does not close it out. You can make draws on your line as often as needed and pay the principal down as funding is available. This creates instant cash flow at the touch of a button. Many lines are connected to your checking account, so you can move funds back and forth with ease.

Improving Business Credit

Product-based businesses are good candidates for this type of lending. A line of credit can be established with a vendor you use regularly. You can order products on your credit line and pay them off promptly. This is helpful if you need materials to complete a job where you will receive payment once it’s completed. When you’ve been paid, you can pay your line of credit down. Many vendors report to credit agencies, so it never hurts to ask if they can share your payment history as well.

Step 6: Pay Your Bills on Time

I have to say, this is crucial when it comes to keeping your credit score impeccable. On-time payment history is one of the most important factors when credit bureaus calculate your score, as your payment history can have a negative impact or a positive impact on your creditworthiness.

Non-payment can result in other negative credit listings, like liens or judgments. Simply paying your bills by the due date will prevent many negative entries and increase your odds of approval when applying for a business loan.

Step 7: Monitor Your Credit Reports

It’s good to keep up with what’s happening in your report. From time to time, errors may pop up. Monitoring your credit is a great way to handle things like this before too much time passes. Sometimes, information is reported incorrectly, and there could even be some fraudulent activity.

Keep up to date with what your current balances should be on all your trade lines, and confirm that total with what the credit agency is showing. These are excellent ways to find errors and ensure incorrect information is not affecting your credit score.

FICO Small Business Scoring Services

This is also known as FICO LiquidCredit SBSS. FICO is not one of the three major credit bureaus, but it still provides its own credit score, which combines all the information collected by D&B, Equifax, and Experian to form your credit profile.

This tool is used frequently by the Small Business Administration (SBA) when approving loans. You don’t have to apply for any numbers or set up anything for this score to populate, as it happens automatically if you have activity with the credit bureaus.

Frequently Asked Questions (FAQs)

What if my business doesn't have an EIN?

What is the best way to see what’s on my business credit report?

What is the best way to improve my business credit score?

Bottom Line

Now that you know how to build business credit, maintaining your credit score is the next step, as it comes with endless benefits. You may qualify for lower interest rates and programs with more favorable terms. You will build strong relationships with your suppliers while watching your business grow and succeed. Honestly, a strong credit profile equals a strong business. With a solid foundation like this, the possibilities are endless.