How to Build Business Credit Fast in 14 Painless Steps in 2019 & Beyond

Small business owner dealing with building business credit.

Note: This post was written in collaboration with Nathan Grant, a Credit Industry Analyst from Credit Card Insider.

When you are a business owner, you should want to build good credit for your business and build it fast, right?

With great business credit comes a host of benefits, saving you a ton of time and money.

But maybe you’ve run into some of these challenges in building business credit:

  • Banks ask you for a personal guarantee
  • Everything is tied to your personal credit scores
  • You are looking to get approved for larger loans and credit limits for your business
  • You are costing your business too much in interest
  • You have several delinquencies in your personal credit reports from before you started your business
  • You are unable to get approved for credit cards that can save your business money through rewards programs

 

With all of these many challenges, how are we ever to accomplish better business credit?

We are going to dive into how to build business credit. But first, let’s take a look at what business credit is…

Disclaimer: The following article is for informational purposes and does not constitute legal or accounting advice. Please consult your own certified tax, legal and accounting advisors before taking any actions for your business.

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What is Business Credit?

You have your own personal credit scores, and when you start a business, it too has credit scores of its own. Business credit is a record of a business’ activity, consisting of payment history over time, credit accounts, and trade lines with vendors, suppliers, and lenders. Business credit scores are based on information found in business credit reports.

 

Similar to personal credit scores, business credit scores are essentially a number that measures how risky you are as a borrower of money, or in this case, how risky your business is.

Business credit scores are affected by:

  • Public records
  • Size of your business
  • Age of your business
  • Credit limits
  • Liens or bankruptcies
  • Your businesses payment habits with delinquencies on outstanding balances having a major impact.

 

Similar to your personal credit scores, overall your business will be measured by its “creditworthiness.”

 

Each of the 3 major business credit bureaus collects data and produces its own credit reports and will typically provide credit scores along with the reports they provide:

 

Each of the credit bureaus uses different algorithms and presentation styles for its own scoring systems. Simpler, less expensive credit reports may only include one credit score, like a payment index (see below). More complex reports will usually cost more and include more scores, but on average the scores you see will fall into three categories:

  • PAYDEX or Payment Index: A scale of 1–100 that indicates how promptly a business has paid its most recent bills.
  • Business Creditworthiness or Credit Score: Scale varies by credit bureau; A bit like a personal credit score, it estimates the likelihood that a business will be delinquent on payments over the next 12 months.
  • Business Failure or Financial Stability Score: Estimates how likely a business is to fail or experience severe financial distress over the next 12 months.

 

In many ways, building good business credit shares these 7 benefits with good personal credit:

  1. Increase the likeliness of getting approved for loans
  2. Get approved for bigger loans and higher credit limits
  3. Get lower interest rates on loans, insurance, and credit cards
  4. Increased approvals for rental property
  5. Get access to business credit without a personal guarantee
  6. Improve your relationships with various merchants and supply sources
  7. Most importantly, improving the reputation and authority of your business

 

Until you establish a business credit file though, lenders will be typically checking your personal credit history when you apply for loans. But just as individuals need to build up a personal credit history from scratch, businesses have to start somewhere to begin the process of building good credit, especially if the company hasn’t been around long.

Luckily, by following these 14 steps, you can work towards just that.

14 Steps to Building Business Credit

Business credit checklist

 

There are two phases to the business credit building process— Establishing the foundation of your business credit files, and then building actual credit itself.

Establishing your business credit files is important for giving your business an identity by which it can be officially measured by the bureaus to build authority and trust for your business, as well as building good credit.

And speaking of the actual credit, this is the important second phase that is essential for reaping the many benefits for your business listed above and for overcoming the challenges new business often face for up to many years when not taking the necessary steps to make a positive impact on their credit scores.

Let’s look at the individual steps needed to make your goal a reality.

1. Obtain a Separate Business Address & Phone Number

Rather than use the same home address and phone number, getting a separate one is another good idea. If you aren’t going to have a physical address for your new company, use a PO Box instead of your home address. This allows you to further separate your personal and business information; credit bureaus and online directories will both recognize this distinction.

2. Officially Incorporate Your Business

Incorporating a business.

 

Before you can start making decisions that will impact your business credit (separate from your personal stuff), you have to create a separate legal entity from yourself. By incorporating, this allows you to set up a seperate credit file under the name of your business and not under your name.

There are 8 types of legal entities you can file under:

  1. Sole proprietorship
  2. Partnership
  3. Limited Liability Corporation (LLC)
  4. C Corporation
  5. S Corporation
  6. B Corporation
  7. Close corporation
  8. Nonprofit corporation

 

If you structure your business as a sole proprietorship or as a partnership, liability will fall on the individuals involved, and an LLC will protect you from personal liability most of the time when it comes to your personal assets in the case of bankruptcy or lawsuit.

By structuring the business as a corporation, you allow the business itself to be taxed and be held legally liable. Besides offering the strongest protections from personal liabilities, corporations are able to go public and have shareholders. If you are starting a nonprofit corporation, you are eligible for tax-exempt status.

Much like how every individual’s personal financial situation is different than another’s, the business owner or partners who are running the business together have to choose the right way to incorporate the business, so review your business needs carefully and you’ve taken the first step towards building up your business credit file.

3. Get Listed in Online Business Listing Directories   

Becoming easy to find for credit bureaus means being added to the directories that are available. This would include being added to the Yellow Pages, 411 White Pages directory, YelpGoogle MyBusiness, as well as any other online and local listings.

​Make sure you list your business name, address, website, and business phone number to the listings. There are even services like Yext or Brightlocal that can help you automate the process if you have multiple locations in multiple states and need to scale the process beyond manual work.

4. Apply for an Employer Identification Number with the IRS    

IRS Building

 

Having a Federal Employer Identification Number (EIN) will enable your business to open a business bank account as well as other privileges. You can apply for your EID online at the IRS website.

You will need a Taxpayer Identification Number (TIN) to apply for an EIN, which can be a Social Security number or an Individual Taxpayer Identification Number.

5.  Register with a Dun and Bradstreet to Get a D-U-N-S® Number  

D-U-N-S stands for “Data Universal N umber ing System.” It’s a global identification system created by Dun & Bradstreet that is used to keep track of businesses.

It is free to apply for one, and by doing so, you can establish a basic credit profile with D&B, marking the next step towards building business credit fast.

6. Open a Business Checking and/or Savings Account  

Business bank account

 

Now that you have your EIN, open a business checking or savings account so you can keep your business finances separate from your personal accounts. Many local banks and credit unions as well as national banks offer free business checking accounts, so research the options in your area.

This is another step in building up separate business credit scores and gives the credit bureaus another look into the transactions made by your business, and will open the door to better loans and credit accounts in the future after lenders see an established business account.

Use the business account to pay all financial transactions for the business including any business loans and credit card bills.

7. Check Your Business Credit Report Regularly With 3 Bureaus    

At this point you may or may not have any business credit reports, but if you do, you will want to review them from credit bureaus like:

  1. Equifax
  2. Experian
  3. and Dun & Bradstreet

 

to look for any errors that shouldn’t be on there, and dispute them if need be.

You want to be sure your business is being reported accurately, especially as you are just starting out and building its reputation. Checking these reports regularly is important as your business is growing.

Since checking your reports registers as a soft inquiry, you don’t have to worry about it dinging your credit scores. Hard inquiries, like when you are applying for several new credit cards or other loans in a short period of time, can negatively affect your scores.

8.  Get Credit with Vendors/Suppliers/Lenders Who Report to Credit Bureaus

When you do business with certain merchants, they will report business trade lines to the credit bureaus. Business trade lines are lines of credit offered to businesses by their vendors for goods or services rendered. Ask the merchants that you plan on doing business with if they will report a line of credit to the credit bureaus listed above.

A common payment system set up for businesses to have you as a vendor pay on “Net X day” terms. Common terms are:

  • 15 day
  • 30 day
  • 60 day
  • 90 day

 

Net 30 refers to a payment system in which a business can make normal purchases on credit, with the full bill due in 30 days. 30 days is the most common, but the business can be set up with the varying payment ranges above. What this does is set up your business to make normal purchases on credit through the merchant that needs to be paid in full by the period of time agreed upon.

Not all vendors and merchants report your business transaction history to the credit bureaus, and in some cases you might even have to fulfill certain prerequisites before a company will report your business payment history with them, so find out who will be reporting before assuming so.

9. Open a Business Credit Card

Business Credit Card

 

Opening a business credit card with your EIN instead of your Social Security Number and using it for your business expenses will let you immediately start building business credit.

For newer businesses, you generally have to personally guarantee your business credit accounts, but as your business grows, you may eventually be able to get cards without a personal guarantee. Most business credit cards will report to at least one of the business credit bureaus, or to Small Business Financial Exchange, but how each card reports will depend on the issuer, and card issuers don’t always publicly disclose which bureaus they report to.

10. Keep Your Business Information up to Date

Businesses grow, and with their growth, there are often changes that the business undergoes, from people, to organization, to the type of business.

Just as it is important to monitor the reporting from each of the business credit bureaus regularly to make sure they are accurate on the bureaus’ end, you also have to do your part to keep your businesses information up to date and accurate.

Make sure listings are current, and the credit bureaus have the most up to date information for any changes that your organization goes through.

11. Make Your Payments On Time & in Full, if Possible

Establishing trade lines

 

Once you have established your trade lines with merchants and are using your business credit cards regularly, similar best practices to managing your personal credit and loan payments apply to building business credit and keeping your scores high.

12. Keep Your Credit Utilization Percentage Lower

Paying your statement balance in full each billing cycle helps you prevent interest from carrying over month to month, and again, help keep your utilization low. If you open more than one card, adding more to your overall credit report, your credit utilization, or the ratio of your balances to your total available credit limits, will be lower, thereby contributing towards building better credit.

This will have a strong positive effect on your credit scores, and your business will save money faster than if it is carrying a revolving balance, accruing interest month-to-month.

13. Don’t Neglect Your Personal Credit

While the goal is to build your business credit separate from your personal credit, they will be intertwined in the beginning to a great extent and to some, although, lesser extent in the future. Keep up good personal habits, and translate those to your business and vice versa.

14. Stay Persistent & Patient

As with most things worth doing well, building business credit generally takes longer than many of us expect. But that is no reason to be discouraged. Plus, following all of the previous steps will help you right out of the gate to begin to move the needle.

After all of these steps have been completed, it is important to keep up with these important practices over time, making responsible decisions for your business, staying on top of your debts, and evolving when the needs of your business demand it.

Building Good Business Credit Is Worth the Effort

Be your own boss. 

While it may seem overwhelming at first, following these 14 steps will be worth it in the long run and will put you on the road to building great business credit and saving your business money.

We know you can accomplish your goal of building your business credit; just take it one step at a time and persevere through it all.

If you think we’ve left out a step or you have something else we should correct or add, please take a minute to leave us a comment below.

Here’s to your business credit success!

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Hi, I’m Miles Anthony Smith, founder of Why Stuff Sucks™, a lead generation/nurturing focused digital marketing agency.

I live for the business results we get for our clients, and love coaching others to level up their digital marketing and leadership skills. Cheers!