Every small business owner should know their business credit score and learn how to maximize it. Having a good business credit score can be the ticket to a business loan or to favorable terms when you purchase goods and services from suppliers.
In this article, we will explain what business credit is, how to build business credit, and how to improve your business credit score. Before we begin, make sure you have a good idea of where exactly you’re starting from by checking your credit score.
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What Is Business Credit & Why Does It Matter If I Have a Good Business Credit Score?
Most people are familiar with their personal credit score, which measures their creditworthiness as an individual. Most people don’t know that their business also has credit score, which assesses the business’ ability to pay back creditors and suppliers on time.
Having a good business or commercial credit score is important for 3 main reasons:
- 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 for 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 commercial 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’ creditworthiness.
Dun & Bradstreet (D&B), Experian, and Equifax are the three major business credit reporting agencies. Each agency has its own scoring models. The most popular is Dun & Bradstreet’s Paydex, ranging from 1-100 with scores over 80 indicating good credit. Experian has a 0-100 scale, and above 80 is a good score. Equifax’s score ranges from 101-992, with 992 being the best score.
It’s important to establish credit with all 3 agencies. While suppliers tend to prefer D&B, banks and other lending institutions prefer Experian and Equifax.
For an in-depth guide on deciphering your business credit report, click here.
How Do I Establish Business Credit?
Each credit bureau has its own procedures for establishing business credit.
Dun & Bradstreet:
There’s a two part process for establishing credit with D&B:
- Get a D-U-N-S (Data Universal Numbering System) number. This is a unique 9-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 monitoring platform such as Nav.
- Provide at least 3 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 with whom you have a positive relationship to report your payment activity to D&B. These are some of the easiest trade references to have reported:
- Quill
- Uline
- Home Depot
- Lowes
- Staples
- UPS
Alternatively, if you pay $99/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.
References are not legally required to report information about your business or verify that you’re a customer. Therefore, if you’re a new business focused on establishing your business credit, we recommend choosing vendors that will report to at least 1 major business credit bureau.
Equifax & Experian:
You don’t need to create an account or get trade references with Equifax or Experian. These bureaus automatically comb Secretary of State records for new business filings and other public records. They can score your business, says Caton Hanson, solely based on demographic information in such records.
How Do I Improve My Business Credit Score?
Once you have established business credit, you should get a copy of your business credit report at least once a year so that you can review your business credit history and score. The report may be ordered directly from the agency or through Nav. We recommend Nav because it allows you to keep tabs on your score over time, and they will help you analyze why your score is what it is.
Unlike consumer credit reports–which you are entitled to receive for free annually–you have to pay for business credit reports. Depending on the comprehensiveness of the report and the reporting bureau that you use, this costs anywhere from $30-150 per report.
Click here for a step-by-step guide on interpreting your score and understanding everything in your business credit report.
If you’re unhappy with your score after getting a copy of your report, here are 5 steps you can take to increase it.
Tips for improving your score:
1. Separate Business and Personal Finances
Separating your business and personal finances is key to maximizing your business credit. How you handle your personal affairs should not impact your business credit, so don’t commingle them. Having separate bank accounts and transactions for personal and business matters helps ensure that even if you have some unexpected event in your personal life that affects you financially, it won’t affect your business credit score.
2. Get a Business Credit Card, Line of Credit, or Lease
The best way to build business credit is to borrow money and pay it back in a timely manner.
Getting a business credit card, using it for regular business expenses, and paying back the balance in full every month is a good first step towards building up a history of prompt payments. As an added bonus, you can earn cash back and rewards points by using a business credit card. If you have a good personal credit score (check here for free) then you may qualify for a business credit card like those offered by Chase. Chase provide excellent cash back offers and travel rewards. You can see exact rates, terms and detail here. Apply online in minutes at Chase.
On the flip side, late payments and high debt-to-credit ratios will hurt your credit score, so take care to pay on time keep your balances at $0 or close to it.
If you can’t qualify for a standard credit card, try getting a card through Staples, Home Depot, Walmart, or other retailers that you buy from. These are relatively easy to qualify for and make good trade references for your business credit report.
Most issuers of business credit cards will report payment activity to all 3 business credit bureaus. Most will not report to the consumer credit bureaus unless you miss several payments. This is true even if you are required to personally guarantee repayment on the card. In other words, responsible usage of a business credit card will in most cases stay off your personal credit report.
Read our complete guide to the best business credit cards here. If your personal credit score is below 620 you may do better with a secured business credit card.
3. Choose Your Supplier and Lenders With an Eye to Your Business Credit
Many small businesses have incomplete business credit histories because their suppliers and lenders don’t report payments to the business credit bureaus. They are not obligated to do so. In fact, according to the U.S. Small Business Administration, less than 6,000 out of the more than 500,000 suppliers in the US report to business credit agencies. Of those that do, many report to only 1 or 2 agencies and not to the others.
If you have a positive payment history, 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, says Caton Hanson of Nav, there’s no cost to report to the credit bureaus.
If possible, going forward, choose creditors and suppliers that report to at least one major business credit bureau, particularly if you have a young business and are trying to build its credit file. 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 rating depends on how timely you pay parties that you do business with.
If you’ve paid on time, that’s great, but if you pay early, that is even better. Vendors can leave comments on your business credit report, such as “Prompt, pays early, pays slow, account sent to collections etc.” While it’s nice to see “prompt,” I don’t know any creditors who wouldn’t love to see “pays early”!
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.” For example, if you have a $100,000 business line of credit but only use a quarter of that, your credit utilization ratio is low. That shows creditors that your business is doing well enough financially that you don’t have to max out your credit line.
6. Fix Errors On Your Business Credit Report
When it comes to consumer credit, there’s a fixed process for disputing errors. Not so with business credit, where each bureau has its own procedures. 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. Fixing an error on your business credit report, assuming that you have documentation to support your claim, usually takes about 1 month.
Bottom Line: How to Build Business Credit
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.
If your personal credit score is hold you back because of old or inaccurate information, or if you’d simply like more hands-on guidance building your credit, we recommend working with My Credit Group. Check out our complete guide to read more about why they are our recommended provider or contact them to get started.
Dwayne Graves
This content creates a new hope and inspiration with in me. Thanks for sharing article like this. The way you have stated everything above is quite awesome. Keep blogging like this.
Richard Kernick
Providing 3 trade references is not necessarily a meaningful indicator of creditworthiness. When applying for credit, a business owner is not necessarily going to provide anything but their best trade references. E.g. Telco, or utility, which will all get paid first, as they are necessary tools to running the business. So by being selective in providing trade references, a lender is not necessarily getting the full picture.
By building a good payment track record with a comprehensive data credit reporting bureau, on a consistent basis, an improved credit score would be accomplished relatively quickly. The other potential is that the credit provider will not be aware of the business owners relationship with the referee; it could be a relative or friend.
Hi Richard,
Thanks for joining the conversation.
We agree: trade references alone aren’t necessarily a great indicator of a business’s creditworthiness. However, for new businesses looking to establish their business credit for the first time, they will need to be more proactive than established businesses. When working with D&B you may need to point your trade references to them to jump start their reporting. This is a quirk to the D&B business credit reporting system.
And yes, this would be in addition to (not in place of) opening and maintaining accounts with companies that will report to more traditional credit reporting bureaus.
Best,
Ian
Elroy Perker
Few more things are need to build your business credit like Establish trade lines with your suppliers and keeps your public record clean.
Hi Elroy,
Thanks for those pointers. Establishing positive trade lines and keeping a clean public record can certainly help with building business credit.
Best regards,
Priyanka Prakash
mark
ok sweetie i dont follow you too well when it comes to the Duns# ok so when i get my duns# do i give this to the bank like wells fargo whom offers the secured biz card instead of my EIN or along with my numbers so they can use that as a credit reporting identifier?
Hi Mark,
EIN number and DUNS number are two different things. The bank will need your EIN number to verify that you have an established business. The DUNS number establishes your D&B Business Credit file.
You will have to provide your EIN number to the bank when applying for a business credit card or loan. You should ask the bank if they would also like to see your DUNS number. If there is a space for DUNS number on the application (or a business credit or miscellaneous section), you should list it there.
Best regards,
Priyanka