A business credit score is a calculation that represents your ability to repay debt obligations. Every small business owner should know how to build business credit and improve their business credit score. A good business credit score can be the ticket to a business loan or favorable terms when you purchase goods and services from suppliers.
In this article, we cover what business credit is, how to build business credit, and tips to improve your business credit score. First off, it’s important you have a good idea of where exactly you’re starting from by checking your credit score for free.
There are seven steps to follow that can help you build your business credit.
1. Incorporate Your Business
Incorporating your business is a good step to consider as a business owner. This tells credit bureaus that your business exists and allows them to create credit reports for it. If you choose to keep your business as a general partnership or sole proprietorship, it doesn’t allow for separation between the business and personal credit history.
By incorporating a business or forming 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 that it protects 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 of company debt obligations
- Corporations are the best for companies that eventually want to go public
- Corporations can raise investment capital
- It’s generally easier to transfer ownership under a corporation
- Corporations aren’t dependent on the life of an individual and can continue indefinitely
- There are more opportunities to create tax benefits
2. Obtain an Employer Identification Number
Just how your Social Security number is used for personal credit reports, a business’s employer identification number (EIN) is used for business credit reports. The employer identification number is the Social Security number of a business. You’ll need one to incorporate your business and possibly to open a business bank account.
Some other times that you may need an EIN for your business are:
- Business loans: If you’re a business that’s applying for a business loan
- Business bank account: When you’re opening a business bank account
- Vendors and suppliers: Qualifying with vendors to buy at wholesale and avoid sales taxes
- Business taxes: When it’s time for your business to file business taxes
3. Open a Business Bank Account
Every small business needs a business checking account for handling money and its financial transactions. Opening a business checking 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 there are many checking accounts that are similar, some providers have lower fees and better introductory offers. We created a guide of the 10 best business checking accounts that compares the different options.
4. Establish Credit With the Main Credit Bureaus
It’s important to know how to establish business credit with Dun & Bradstreet, Experian, Equifax, and the FICO LiquidCredit small business credit score (SBSS) scoring model. Between these bureaus and scoring models, It’s important to focus on Dun & Bradstreet because it’s the most commonly used business credit score and has a two-step process for establishing credit.
Each credit reporting agency has its own process for establishing business credit.
Dun & Bradstreet
Dun & Bradstreet (D&B) is 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 D-U-N-S (data universal numbering system) number.
There’s a two-part process for establishing credit with D&B:
- 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.
- 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. Some of the easiest trade references to have reported are Home Depot, Lowes, Staples, and UPS.
You can get trade references by asking vendors with whom you have a positive relationship to report your payment activity to D&B. Alternatively, if you pay $149 per month for D&B’s CreditBuilder service, D&B will contact vendors for you to verify that you are a customer and have been paying on time.
It’s also possible that you already have a D-U-N-S number and a business credit score. 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 automatically look at the secretary of state records 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 Dun & Bradstreet, up-to-date and accurate information can benefit your Equifax business credit score. In contrast to Experian, business owners that 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 and is used most often. FICO is unique because it isn’t technically one of the three major credit bureaus, but it still provides its own unique score.
Instead, 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. It’s important for all business owners to focus on this score because it’s most commonly used when approving Small Business Administration (SBA) loans.
Remember, D&B is the only credit bureau that will require you to establish credit with them on your own. The rest including Experian, Equifax, and FICO will all collect data and business information automatically, as long as your payment history has been reported by a vendor.
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 or boost your business credit score, you may want to open a line of credit with companies who report to the business credit reporting bureaus. It’s recommended to have three to five lines of credit with vendors who report payment information to establish a strong business credit history.
6. Make Timely Payments
Most people know this, but to build your business credit score, you must pay all your creditors and lenders on time. Your payment history with vendors, lenders and credit issuers is one of the most important factors in your business credit score. Similar to your personal credit score, late payments will hurt your business credit score.
7. Measure Your Business Credit Score
Business credit scores generally range from 0 to 100, with the exception of the FICO LiquidCredit SBSS, which ranges from 0 to 300. The higher the score, the better the credit and the lower the likelihood of a late or delinquent payment. Each credit bureau has its own measure of what they consider to be a good score.
The four most common business credit scores are:
- Dun & Bradstreet PAYDEX Score
- Experian Credit Ranking Intelliscore
- Equifax Business Payment Index
- FICO LiquidCredit SBSS
How Business Credit Scores Are Used
It’s important to establish credit with all four bureaus and understand the most common business credit scores. While suppliers tend to prefer D&B, banks and other lending institutions prefer Experian and Equifax.
You should also know that the FICO LiquidCredit SBSS incorporates your personal credit score and is used for Small Business Administration (SBA)( loan approvals. Banks generally consider a good score to be 160+, but some may go down to 140. FitSmallBusiness has an in-depth guide that can help you decipher your business credit report.
What the Business Credit Score Ranges Are
|Business Credit Score||Credit Score Range||Credit Explanation|
|Dun & Bradstreet PAYDEX Score||0 - 100||Good Score is 80+|
|Experian Credit Ranking Intelliscore||0 - 100||Good Score is 76+|
|Equifax Business Payment Index||0 - 100||Good Score is 90+|
|FICO LiquidCredit SBSS||0 - 300||Good Score is 160+|
Why a Good Business Credit Score Matters
Most people are familiar with their personal credit score, which measures their creditworthiness as an individual. Most business owners don’t know that their business also has a credit score, which assesses the business’s ability to pay back creditors and suppliers on time.
Some of the reasons it’s important to have a good business credit score are:
- Helps you qualify for business financing and save money: Good business credit leads creditors to place trust in your business; this helps you qualify for business loans and business credit cards, and the largest amounts of financing and the lowest interest rates
- Helps you qualify for good terms from suppliers: Just as a good business credit score builds trust among lenders, suppliers are more likely to grant favorable payment options to businesses with a good business credit score
- Reduces reliance on your personal credit score: If you have good business credit, lenders, and suppliers may extend you credit without checking your personal credit history; even if your personal credit isn’t that great, your business won’t suffer for it if financing can be extended on the basis of your business’s creditworthiness
6 Tips to Improve Your Business Credit Score
Once you have established business credit, you should get a copy of your business credit report at least once a year to review your business credit history and score. The report may be ordered directly from the agency or through Nav. Nav allows you to keep tabs on your score and helps you analyze your score.
After receiving and analyzing your credit report, there are a few things you can do to improve your business credit score quickly. Three ways to expedite improving your score include fixing errors on your report, watching your credit limit, and paying off any overdue balances. There are also other methods to help build strong credit over time.
There are some best tips to consider that can improve your business credit score.
1. Separate Business & Personal Finances
Separating your business and personal finances is key to maximizing your business credit score. How you handle your personal affairs shouldn’t impact your business credit. Having separate bank accounts for personal and business matters helps ensure that even if you have some unexpected financial event in your personal life, it won’t affect your business credit score.
For business checking accounts, you can check out our article on the best small business checking accounts. And for the best business savings accounts, you can read our article on the best small business savings accounts.
2. Get a Small Business Credit Card
The best way to build business credit is to borrow money and pay it back in a timely manner.
For example, getting a small business credit card and paying the balance every month is a good first step toward building a strong payment history. Late payments and a high credit utilization ratio will hurt your credit score, so it’s important to keep your balances close to $0.
As a bonus, you can earn cash back and rewards points by using a business credit card. If you have a good personal credit score, then you may qualify for a business credit card like those offered by Chase. Chase provides excellent rewards, and you can compare these cards through the FitSmallBusiness Credit Card Marketplace.
3. Choose Your Supplier & Lenders With an Eye to Your Business Credit
Many small businesses have incomplete business credit histories because suppliers and lenders aren’t required to report payments to the business credit bureaus. If you have a positive payment history, it’s important to ask your current suppliers and creditors if they report to the business credit agencies.
If they don’t, ask them if they can start reporting. Many vendors will agree because there’s no cost to report to the credit bureaus. If possible, choose creditors and suppliers that report to at least one major business credit bureau, especially if you have a new business and want to build its credit history. Some easy credit lines to have reported are Quill, Uline, UPS, Staples, Lowes, and Home Depot.
4. Pay Your Bills On Time or, Better Yet, In Advance
This seems like a no-brainer, but to get your business credit as high as it can be, you have to pay every one of your suppliers and lenders on time. The bulk of your business credit score depends on how timely you pay back your debt obligations.
If you’ve paid on time, that’s great, but if you pay early, that is even better. If you can average 30 days early, you can receive the highest business credit score. Vendors can leave comments on your business credit report, such as “Prompt, pays early, pays slow, account sent to collections, and so on.”
5. Don’t Use Too Much Credit
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 measures how much of your total available credit you’re using. For example, if you have a $100,000 business line of credit but only use $25,000, your credit utilization is low.
Aside from your payment history, your credit utilization is one of the biggest factors impacting your business credit score. Creditors generally like to see your credit utilization ratio below 30%, as long as it’s not 0%. Using your credit responsibility shows creditors that you can manage your debt obligations.
6. Fix Errors on Your Business Credit Report
Errors on your business credit report such as misreported payment information can skew and have a negative impact on 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 disputes items on an Equifax report, log into your account and contact customer service. With the right documentation, fixing an error on your business credit report usually takes about one month.
Frequently Asked Questions (FAQs) About Business Credit Scores
We covered a lot of steps on how to build business credit and improving your business credit score. Some questions are asked more often than others, and we address those here. If you have any other unanswered questions, please feel free to share them on our FitSmallBusiness forum, and we’ll provide an answer.
How Do I Check My Business Credit Score?
You can check your business credit score for free on Nav. It provides personal and business credit scores with a summarized credit report. If you’re looking to review a full credit report, it offers paid options for that too.
Can You Get a Business Credit Card With Bad Credit?
While it’s possible to qualify for a small business credit card with a 640 or higher credit score, we recommend having a 700 or higher score if you want to qualify for the best rates and largest credit lines. If you have bad credit, which is a score of less than 600, you can still qualify for a secured credit card or a prepaid business credit card.
Do I Need Good Credit to Start a Business?
There are several requirements a startup must meet, such as your credit score, to qualify for an SBA loan. Generally, if you want to apply for an SBA loan, you will need a credit score of 680+. There are other alternatives to help to fund your startup like credit card stacking, which has different qualification requirements.
The 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 good business credit is the key to many benefits, such as low-interest business financing and favorable payment terms from suppliers. Using the tips above, you can improve your score and reap these benefits.
Nav is an online credit platform that helps business owners access their business and personal credit scores. They offer a free personal credit score from Experian and two free summaries of your business credit reports.