How to Build Business Credit in 6 Steps

A business credit score is an indicator of your business’s creditworthiness, which lenders and creditors use to determine your risk as a potential borrower. Scores typically range from 0 to 100 and are measured by the major business credit bureaus: Dun & Bradstreet, Equifax, and Experian. A good score can be the ticket to a business loan or favorable terms on a business credit card or with a vendor. To build business credit, use this expert-approved six-step process.

1. Incorporate Your Business

When you incorporate your business or form a limited liability company (LLC), you separate your business and personal credit profile legally. The most common reason small business owners choose to incorporate their businesses is to protect them from personal liability for the actions of the corporation. However, this is not the only advantage to incorporating your business.

Some of the advantages of incorporating your business are:

• Small business owners are protected from personal liability for company debt obligations
• Corporations are the best for companies that eventually want to go public
• Corporations can raise investment capital
• Transferring ownership is generally easier as a corporation
• Corporations aren’t dependent on the life of an individual and can continue indefinitely
• There are more opportunities to create tax benefits

Incorporating your business tells credit bureaus that your business exists and allows them to create credit reports for it. If you keep your business as a general partnership or sole proprietorship, it doesn’t allow for separation between the business and personal credit history.

2. Obtain an EIN

Just as personal credit bureaus use your Social Security number for personal credit reports, business credit bureaus use a business’s EIN for business credit reports. The EIN is essentially the Social Security number of a business. You’ll need an EIN to incorporate your business, apply for business loans, open a business bank account, use with vendors or suppliers, and file business taxes.

You can apply for an EIN online in about 10 minutes. Once you receive your EIN, you can use it immediately for most business purposes. However, you’ll need to wait about two weeks to use your EIN to file taxes electronically.

3. Open a Business Bank Account

Every business needs a small business checking account for handling money and its financial transactions. Opening a business bank account under your business’s legal name is required if you want to maintain the liability protections offered by LLCs. If business owners commingle their business and personal finances, then a creditor has the right to say that company owners are liable for all company debts or damages.

While many checking accounts are similar, some banks don’t charge monthly account fees or make it easy to avoid them by meeting minimum balance requirements. These free business checking accounts can help keep traditional bank fees to a minimum, which allows you to keep more money in your business.

4. Establish Business Credit With the Main Credit Bureaus

There are three business credit bureaus: Dun & Bradstreet, Experian, and Equifax. Additionally, FICO also provides the FICO LiquidCredit small business credit score (SBSS) scoring model. Each credit reporting agency has its own process for establishing business credit.

Dun & Bradstreet

Dun & Bradstreet (D&B) offers the most commonly used business credit score. D&B collects public business and industry information, payment history, and financial performance information to generate three individual business credit scores. To gain access to these scores, you must first get a data universal numbering system (D-U-N-S) number. This is the only credit bureau that requires you to establish business credit with them on your own.

To complete the two-part process for establishing business credit with D&B, you need to:

1. Get a D-U-N-S number: This is a unique nine-digit identification number that is used to create your business credit file, similar to how your Social Security number is associated with your personal credit reports. You can apply for a D-U-N-S number for free on D&B’s website or through a credit platform like Nav.
2. Provide at least three trade references: Trade references, similar to employment references when you apply for a job, come from suppliers and creditors that you’ve done business with. You can get trade references by asking vendors you have a positive relationship with to report your payment activity to D&B.

It’s also possible that you already have a D-U-N-S number if a vendor or supplier previously reported information to D&B. You can check to see if you already have a D-U-N-S number by visiting the D&B website and searching for your company. If you already have a D-U-N-S number, you’ll want to make sure that you check the accuracy of the information on your D&B credit report.

Equifax & Experian

You don’t need to create an account or get trade references with Equifax or Experian. These bureaus look at the secretary of state records automatically for new business filings and other public records. They can score your business solely based on demographic information in such records.

However, Equifax allows for business owners to self-report company information. This isn’t required but, like D&B, up-to-date and accurate information can benefit your Equifax business credit score. In contrast to Experian, business owners who want the most accurate credit scores should take advantage of Equifax because of the ability to self-report information.

FICO LiquidCredit SBSS

The FICO LiquidCredit SBSS is a mix of your personal and business credit score. FICO is unique because it isn’t technically one of the three major credit bureaus, but it still provides its own unique score.

FICO provides a business credit score based on information already collected by Dun & Bradstreet, Experian, and Equifax. Therefore, there is nothing you need to do besides having your credit information looked at by the three main bureaus. All business owners need to focus on this score because it’s most commonly used when approving Small Business Administration (SBA) loans.

5. Establish a Line of Credit With Vendors

While there is a handful of information that can show up on your business credit report, trade lines can be some of the more important pieces of your credit history. A business trade line is a line of credit between a business and a vendor, which allows your business to pay its balance at a later date.

If you want to build your business credit, open a line of credit with companies that report to the business credit bureaus. You should have three to five lines of credit with vendors that report payment information, such as a small business credit card, to establish strong business credit.

6. Make Timely Payments

To build business credit, it’s crucial to repay all your creditors and lenders on time. Your payment history with vendors, lenders, and credit issuers is the most important factor when business credit bureaus calculate your business credit score. Similar to your personal credit score, late payments will hurt your business credit score. A low credit score is the leading reason for credit denial. If your credit is damaged, consider opening a secured business credit card to help rebuild your score.

If you want to build your business credit and not your personal credit, choose to apply for a business credit card that doesn’t report to personal credit. If you don’t, your business credit card can affect your personal credit.

Build Business Credit Fast

Building business credit takes time. However, a few different tactics can help boost your score quickly. Whether you choose to use a business credit card, pay off existing debt, maintain low credit levels, or remove any errors on your business credit report, you can move your business credit score up and to the right. Once you’ve used these tactics, you can see how those actions impact your score the next time you check it.

1. Get a Small Business Credit Card

The best way to build business credit fast is to borrow money and pay it back promptly. For example, getting a small business credit card and paying the balance every month is a good way to build a strong payment history. Late payments and a high credit utilization ratio hurt your credit score, so it’s important to keep your balances close to $0.

As a bonus, you can earn cash back and points-based rewards when you use a business credit card or charge card. If you have a good personal credit score (at least 670), then you may qualify for some of the best business credit cards. If your score is less than 670, consider a credit card for fair credit.

2. Pay Off Any Existing Debt in One Sweep

The bulk of your business credit score depends on how timely you pay back your debt obligations. If you have existing debt, whether it’s with vendors or even on your credit cards, pay it off in one sweep. Minimizing your debt is one easy way to build your business credit fast.

If you notoriously make late payments, it’s best to work your way out of that bad habit. Instead, aim to pay on time or even early. If you can average 30 days early, you can increase your chances of building your business credit score.

3. Maintain Low Credit Levels

The less credit you use out of the credit you have, the better it reflects on your score. This is called your credit utilization ratio, which is a measurement of how much of your total available credit you’re using compared to your credit card balance. Creditors generally like to see your credit utilization ratio below 30% as long as it’s not 0%. When you use your credit responsibly, it shows creditors that you can manage your debt obligations.

For example, if you have a business credit card with a $30,000 credit limit but only use $3,000, your credit utilization ratio is 10%, which is low. Maintaining similar credit levels can help you boost your business credit over time and increase your approval odds for future credit.

4. Fix Errors on Your Business Credit Report

Errors on your business credit report, such as misreported payment information, can skew your business credit. It’s a good rule of thumb to reconcile your business bank and credit card accounts with your trade lines as this is where businesses will usually find errors or fraud on their accounts.

Each business credit reporting agency has its own procedures for errors on a business credit report. You can submit disputes electronically to D&B and Experian. To dispute items on an Equifax report, log into your account and contact customer service. With the right documentation, it usually takes about one month to fix an error on your business credit report.

Bottom Line

When you’re just starting a business, you may not pay much attention to your business credit. But as you expand and grow, establishing business credit is the key to many benefits, such as low-interest business financing and favorable payment terms from suppliers. Using the steps outlined above, you can build a strong business credit score and set yourself up for success.