How To Build Business Credit

Establishing a strong business credit profile is essential to getting approved for funding and securing favorable loan terms.

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Benefits of Establishing Business Credit History

Establishing a strong business credit history is essential for small business owners looking to grow and succeed in today's competitive marketplace. A good business credit profile offers numerous benefits, including access to funding, lower interest rates, better terms from suppliers, and the ability to qualify for government contracts. In the following sections, we'll dive into the specific advantages of building a solid business credit history, and how they can positively impact your company's financial future.

Get approved for business loans with more favorable terms

Building a strong business credit history can make it easier to qualify for Small Business Administration (SBA) loans and other financing options from banks or credit unions. Lenders are more likely to approve loan applications from businesses with established credit profiles, as it demonstrates responsible financial management and a lower risk of default.

Get lower interest rates

A good business credit can lead to lower interest rates on loans, lines of credit, and credit cards. This can save your business thousands of dollars in interest payments over time.

Get lower business insurance premiums

Insurance companies often consider your small business credit score when determining your insurance premiums. A higher credit score may result in lower premiums, which can save your business money on insurance costs.

Improved net terms and credit limit from suppliers and vendors

Suppliers and vendors are more likely to offer better credit terms and higher credit limits based on your business creditworthiness. This can help you manage cash flow more effectively and negotiate better deals from your partnerships.

Qualify for government contracts or contracts with larger companies

Government agencies and large corporations often require sole proprietors to have a solid business credit history. Establishing a strong credit profile can open doors to new opportunities and help your business grow.

Raise funding from venture capitalists or angel investors

Investors typically prefer to invest in businesses with established credit histories, as it demonstrates responsible financial management and a lower risk of failure. A strong business credit profile can make your sole proprietorship more attractive to potential investors.

Clarify helps entrepreneurs with any PAYDEX rating get a fast business loan.

9 Ways To Build Business Credit Fast

Small business owners with good business credit scores get access to better funding with lower interest rates. Let’s look at nine actionable steps you can take to establish and improve your credit quickly. By following these steps, you'll be well on your way to achieving a strong credit profile.

Incorporate as a separate business entity

To build business credit, it's crucial to separate your personal finances from your business finances. Incorporating your business as a limited liability company (LLC), corporation, or other legal entity can help establish a clear distinction between your personal and business credit profiles. Consult your accountant or lawyer to see which is the best business structure for you.

Get an Employer Identification Number (EIN) from the IRS

An EIN is a unique identifier assigned to your business by the Internal Revenue Service (IRS). Obtaining an EIN is essential for building your business credit, as it allows you to open a business checking or savings account and apply for credit in your company's name.

Get a business bank account and business credit card

Open a business bank account and apply for a business credit card to further separate your personal and business finances. Make sure to use the business credit card responsibly and pay off the balance each month to help build your credit score.

Pay your bills and creditors on time

One of the most important factors in building your business’s credit is on-time payments. Late payments can negatively impact your credit score, so make it a priority to pay all business expenses promptly.

Get vendors that report payments to credit bureaus

Some vendors and suppliers report your payment history to business credit bureaus, such as Dun & Bradstreet, Experian, and Equifax. Establish relationships with these vendors and make timely payments to help build your credit profile.

Get your vendors to establish a trade line

Trade lines are lines of credit extended by suppliers or vendors that allow your business to purchase goods or services on credit. Establishing trade lines and maintaining a positive payment history can significantly improve your score.

Avoid bankruptcies, liens, and legal judgements

Keeping your business free of bankruptcies, tax liens, and legal judgements is critical to avoid bad credit. These negative marks can significantly harm your business credit report and make it more difficult to obtain financing or favorable credit terms in the future.

Submit vendor / trade references to D&B

Dun & Bradstreet (D&B) is one of the leading business credit reporting agencies. Providing D&B with vendor and trade references that can attest to your company's responsible payment history can help improve your credit. Make sure to choose references that can provide positive feedback and confirm your timely payments.

Regularly check your score score

Regularly monitoring your credit score allows you to identify potential issues and track your progress. You can dispute any discrepancies or negative items that might be impacting your score and take proactive steps to improve it. There are two primary types of credit checks you should be aware of: soft credit checks and hard credit checks.

Soft credit check:

Soft credit checks, also known as "inquiries," are a way to review your company’s credit without negatively impacting it. Regularly reviewing your credit score through soft checks can help you track your progress and identify areas for improvement.

Hard credit check:

Hard credit checks occur when a lender or creditor reviews your credit report to make a lending decision. These inquiries can temporarily lower your consumer credit score, so it's essential to limit hard credit checks by only applying when necessary.

Pro Tips When Building / Repairing Your Business Credit Rating

Navigating the process of building or repairing your business credit report can be challenging, but with the right strategies and guidance, you can make significant progress. Here's expert advice from Clarify on separating your personal and business credit, disputing errors on your credit reports, and monitoring your business credit profile.

Establish Business Credit History Without Using Personal Credit

Building a strong business credit history independent of your personal credit is crucial for protecting your personal finances and creating a separate credit profile for your company. This section will discuss additional steps you can take to establish your business credit without depending on your personal credit.

Difference Between Personal Credit Scores vs. Business Credit Score

Personal credit scores are based on your individual credit history and usually range from 300 to 850. They are linked to your social security number. Factors that influence your personal credit score include payment history, credit utilization, length of credit history, and the types of credit accounts you have. Business credit scores, on the other hand, are specific to your business and typically range from 0 to 100. They consider factors like your business's payment history, credit utilization, and company size.

Using Business Lines of Credit

A business line of credit is a flexible financing option that allows you to access funds as needed, up to a predetermined limit. By securing a business line of credit and using it responsibly, you can demonstrate your company's financial stability. Compare different issuers and providers before you apply.

Get a Small Business Grant

Applying for and winning small business grants can provide your business with the capital it needs to grow without relying on your personal credit. While grants are competitive, securing one can give your business credibility and help you establish a strong financial track record. The type of business your operator plays a factor in winning an SMB grant.

Lease or Finance Equipment

Equipment financing or leasing allows you to acquire the assets your business needs without using personal credit. By making timely payments on equipment loans or leases, you can demonstrate responsible credit management and improve your credit. You don’t need any personal assets for collateral apart from the equipment itself.

Dispute errors on your business credit reports

Mistakes and inaccuracies on your credit report can negatively impact your credit score. Regularly review your credit reports and dispute any errors you find with the appropriate credit reporting agency. Make sure you business name and phone number are correct on your report.

Regularly Monitor Business Credit Reporting Agencies

Monitoring your credit profile with major business credit bureaus can help you stay informed about your credit score and quickly address any issues that may arise.

1. Dun and Bradstreet

D&B is a core business credit agency that issues the D-U-N-S Number, a unique identifier for businesses, and a PAYDEX score.

Check your D-U-N-S Number

Ensure that your business has a D-U-N-S Number, as it's required for many financial transactions and credit applications.

Free option: CreditSignal

CreditSignal is a free service offered by D&B that allows you to monitor changes in your business credit score and receive alerts when your credit report is accessed.

2. Equifax Business

Equifax is another major credit reporting agency that tracks credit scores and provides reports for small businesses.

3. Experian Business

Experian is a credit reporting agency that offers credit reports and scores for your business, as well as monitoring services so you can get alerts on updates.

4. Credit Karma

Credit Karma is a free service that provides access to your business credit file and credit reports from D&B and Experian.

Average Time To Build Business Credit

Building a good business credit score takes time and consistent effort. On average, it can take anywhere from six months to two years to establish a solid business credit profile, depending on your business's financial history and the steps you take to improve your credit.

FICO SBSS: The Hybrid Credit Score

The FICO Small Business Scoring Service (SBSS) is a hybrid credit score that combines your personal and business credit information. Lenders often use the FICO SBSS score when evaluating applications for small business loans, lines of credit, and SBA loans. By maintaining strong personal and business credit profiles, you can improve your FICO SBSS score and increase your chances of securing funding for your business.

FAQs about Building Business Credit

Start by incorporating your business as a separate legal entity, obtaining an Employer Identification Number (EIN), and opening a business checking account. Next, establish trade lines with suppliers and vendors that report payments to the credit bureaus, and make sure to pay them on time.

Applying for a business or personal credit card and using it responsibly can also help boost your credit score quickly. Keep in mind that building a strong credit profile takes time, so consistently following these steps and maintaining good financial practices will expedite the process.

Yes, an LLC can have its own credit score, separate from the personal credit scores of the entrepreneur. When an LLC is registered as a distinct legal entity, it can establish business credit by obtaining an EIN, opening a business bank account, and engaging in financial transactions. To build a business credit score, the LLC must establish trade lines with suppliers, vendors, or creditors that report to the major credit bureaus.
When a business is first established, it typically does not have a credit score. A business credit score is generated once there is sufficient personal credit history and financial data available for the credit reporting agencies to evaluate. To begin building a credit score, a business should establish trade lines with suppliers and vendors, apply for business credit cards, and engage in responsible financial practices, such as making timely payments and keeping credit utilization low.
To obtain a credit report for your business, you can contact major credit reporting agencies, such as Dun & Bradstreet, Experian, and Equifax. These business credit bureaus offer various credit report products, often for a fee. Some platforms, like CreditSignal or Credit Karma, offer free access to your business credit score and limited credit report information.
Down Building credit for a new business involves incorporating as a separate legal entity, obtaining an EIN, and opening a business checking or savings account. Establish trade lines with suppliers and vendors that report to the credit bureaus, and make sure to pay them on time. Sole proprietors can apply for a business credit card, and use it responsibly to demonstrate good credit management.
A DUNS (Data Universal Numbering System) number is a unique identifier assigned to your business by Dun & Bradstreet. While it's not strictly required, having a DUNS number can help. Many lenders, suppliers, and vendors use the DUNS number to check your business credit profile, and it may be a prerequisite for certain financial transactions, government contracts, or grant applications.
The time it takes to build credit as a new LLC can vary depending on your business's financial activities and credit management practices. On average, it may take anywhere from six months to two years for a new LLC to establish a strong business credit profile. This timeline can be influenced by factors such as the number of trade lines established, payment history, and credit utilization. Consistent and responsible financial practices, such as timely payments and maintaining a low debt-to-credit ratio, can help accelerate the process of building credit for your LLC.

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What you need to get approved

  • keyboard_arrow_right Time in business at least 3 months
  • keyboard_arrow_right Generate over $10,000 in revenue per month
  • keyboard_arrow_right Have a business bank account

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