How to Establish, Build & Get Business Credit

How to Establish, Build & Get Business Credit

Figuring out how to access business financing and credit is a common quest for both new and existing small business owners. From start-up costs to new expansion strategies, establishing a strong business credit profile with diverse accounts can help make or break your immediate and future business plans.

Why Should I Learn How to Establish Business Credit?

If you’re reading this, you already know that good credit (both consumer and business) is important for the future of your venture, but let’s explore the benefits a bit more.

Strong business credit scores can help business owners secure better interest rates on loans, decrease instances where you need to prepay for a specific product or service, and secure better trade terms with important suppliers in your industry. In the long run, this will help you save money and access the funds or assets you need to help your business grow. (Nav customers can use the BusinessLauncher tool in their free account to start building a business credit profile.)

In fact, one of the primary reasons business owners are denied funding is due to a failure to understand their credit. Nav’s 2015 American Dream Gap Report found that nearly one in four businesses don’t know why their loan applications are denied, yet businesses that understood their business credit scores were 41% more likely to get approved for a small business loan.

Additionally, a big issue with financing a business is dealing with personal guarantees. A personal guarantee is a promise from a business owner that they are responsible for their business’s debt should the business be unable to pay the debt. One in five of business owners use their personal assets to fund their entrepreneurial dreams, and establishing business credit can help you draw a clear and important line between your personal and business finances and mitigate the need to sign a personal guarantee for business funds.

8 Steps to Establishing Business Credit

At this point you’re probably thinking “Yes, I get it. It’s important. Can you please tell me how I can get this party started?” Much like a great party takes some planning and coordination, establishing and building credit takes time and effort. However, these tips on how to establish business credit can help you bring your plans and aspirations to fruition.

  1. Put Your Business on the Map.

    Just because you’re open (or about to open) for business, doesn’t necessarily mean you’ve put yourself on the map. You can’t effectively establish credit until you’ve established your business! Get a business phone number and have it listed in the directory. Every credible business should have one. You’ll also want to open a bank account in your official (legal) business name, and regularly use it to pay your bills.

  2. Establish and Maintain Good Credit Relationships with Suppliers and Vendors.

    In the world of business, a solid line of credit with industry relevant vendors or suppliers is like gold. The better your relationship, the more likely you are to avoid paying upfront for items or services. If you can secure a line of credit or payment terms such as net-30 with just a few (3 – 5) vendors or suppliers that report those payments to business credit reporting agencies, you can establish a positive business credit history.

    Your vendors aren’t required to report to credit bureaus, though, so you may need to be proactive and open accounts with those that do. Here are three vendors that report payments to business credit bureaus, and that are flexible when extending credit.

  3. Obtain an Employer Identification Number.

    A Federal Tax Identification Number, or EIN, is like a social security number for your business. You’ll need one of these to incorporate, and you may need one to open a bank account under your business’s name or secure business contracts.

  4. Pay On Time All the Time.

    This is probably the number one rule in any credit situation. Paying your bills on time shows that you are reliable and can effectively manage (and pay off) your debt. Late payments, especially severely delinquent ones, will bring down your credit score and negatively impact your business credit profile.

  5. Open a Business Credit Card.

    Opening a business credit card with a company that reports to the major credit reporting agencies is a great way to establish business credit. You definitely should have at least one open credit card, but more than one can also help. However, be sure to use caution and avoid over extending your business finances. Just because the credit is there, doesn’t mean you need to (or should) utilize all of it. (Find business credit cards that match your credit profile using a free Nav account.)

  6. Get Incorporated.

    If you haven’t already, seriously consider getting incorporated. By adding Inc. or LLC. to your business, you’ll be legally separating your business and personal profile. If you choose not to do this, your business and personal credit history (among other things) will be legally attached.

  7. Transition Commercial Expenses Away from Personal Finances.

    Given the steps above, this is fairly redundant, but none the less important. By opening credit cards, lines of credits, and bank accounts in your business’s legal name, you’ll be separating yourself. Add on your new Inc or LLC, and you’ll be creating plenty of distance. Clearly separating your expenses also makes it a lot easier to manage taxes!

  8. Monitor Your Credit.

    25% of small business owners have reported significant errors on their credit reports. Diligently monitoring your business credit history can help you spot any issues or blemishes that aren’t accurate. If you do find an error, be sure to file a dispute with the reporting agency. (Sign up for Nav get an alert when your business credit profile has been created with Dun & Bradstreet or Experian.)

How to Build Business Credit

Once you have established business credit, your next step is to build strong business credit. Many of the steps above will help you do just that, but it’s important to focus on two specific steps to help you boost your commercial credit history.

The first step is to pay early. In the advice above, we mentioned how it’s important to pay on time. But with some business credit scores, you can in essence get “extra credit” for paying your bills before they are due. Payment information on business credit reports is often more detailed than on personal credit reports. Pay faster if you can, and you may build your business credit scores more quickly.

The second piece of advice for building good business credit is to make sure you have accounts reporting to the various business credit agencies. Again, not all vendors and lenders report to all commercial credit agencies. For example, your business credit card issuer may report to SBFE but not to D&B; you won’t know until you check your reports.

So be sure to check your credit reports and scores with more than one major credit reporting agency to find out whether your accounts are helping your scores, and if not, consider adding additional credit references. With Nav’s Premium Plus subscription you’ll see your business Experian Intelliscore, D&B Paydex Score and your FICO SBSS score.

Ready to see your credit data and start building better business credit? Check Your Personal and Business Credit For Free (No Credit Card Required).

This article was written on October 7th, 2015 and updated on January 24th, 2018.

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26 responses to “How to Establish, Build & Get Business Credit

  1. I have been following your advice on building business credit this far. Great information actually I have been using my funds to open a retail store as time has come to seek a business loan , I am quickly approaching a one (1) year Anniversary in March. I have above average credit score (upper 700’s) . For loan for inventory would I need a business plan?

  2. Hi, I have a Corp that has been dissolved however I can get it reinstated it has no credit file but it is a 16 year old Corp. Would I be better off reinstating this Corp. Or start a new one to build biz credit faster and easier for time in business for loan applications ?

    1. My guess is that the old Corp isn’t on the credit bureaus’ radar anymore. Have you tried to look up business credit on it? You can certainly reinstate it but the benefit– other than maybe time in business– might be minor. But it also wouldn’t hurt as long as there is nothing negative.

  3. I am a commercial lender (for real). Here is what my 15 years of experience has taught me when it comes to business credit and lending.

    Business credit does not exist. People have a score over their heads from the big three. Business do not and are not tracked by the big three. There is only a couple companies that track business credit and they do not do a very good job at it. Therefore, they hold no weight what-so-ever in when it comes to lending with financial institutions. If you have an amazing score from one or all of these companies you will get a firm pat on the back, an “atta-boy” or maybe even a gold star on your forehead. All finical institutions do what is called a risk rating. and the idea is you want to score low. Here are some of the categories that most financial institutions look at for establishing credit with them:

    1. Cash on hand, lenders love to see the money the accounts collecting dust, and Love to lend to companies that don’t need it.
    2. Type of industry (some industries are riskier than others.)
    3. Vendors or how they make money.
    4. Length of time in business.
    5. Collateral
    6. Debt coverage service ratio
    7. Signers and what there personal credit looks like.

  4. Our HOA has a management company that insists on paying our bills with our checking acct. instead of a cc. We don’t have a cc yet, but now it looks like we would never use one. Should we look for another management company or are there other ways to build our credit other than utilizing vendors who report to the business credit reporting companies?

  5. Mine jumped overnight. Consistently 810-840 then i used 100% of my home equity loan to buy land next door. Went to 678. I called my cc companies and asked them to raise my limits so I ended up with more open credit than what I owed. Now 5 months later I am high 700’s but psychologically need to get over 800 again

    1. I’v been building business credit for about a month now, I just paid my 2 invoices on time a week in advance. But my personal credit is shot always has been (I’m working on it now, paying down cards and on time payments). How will I ever get a business credit card or loan? I have an LLC that I might transfer to a C-Corp. I only want to use my business credit not personal is that even possible.

  6. And no mention of the importance of a paydex score. This is crucial in the world of business credit. It seems no financial institution mentions this

  7. So I have a cleaning service And am sole proprietor am thinking of making it a LLC so what would I have to do for it to become LLC would I have to start all over again with my tax id or a short cut to just go from sole proprietorship to LLc ?

    1. Hi Tony, according to the IRS, sole proprietors looking to incorporate will need to obtain a new EIN. There may be exceptions, for example you may not have to obtain a new EIN if you are the sole owner, choose not to be taxed as a corporation, and you have no employees or excise tax liability. I would suggest, however, consulting a lawyer or incorporation expert for help with your specific business situation.

    2. Go to MD taxes assessment and go to legal form LLC. Printed and take it to Baltimore
      And 150$ cash
      And you will change it to LLC in the same day

  8. finally my d&b score is posting I have 5 trade lines in tier 1 I want to move on to next tier I don’t want to jump the gun so I ask what should be my next steps to apply for ? I have no business credit card just a business debit card

    1. Do you know what your D&B Paydex score is? How old are those tradelines? And how is your personal credit?

      1. Paydex score is 80 personal credit is in low 600’s I recently got approved for a capital one spark business card only a 500$ limit I received another offer from capital one for another business card. But I rather try someone else if I would have a better chance to get a higher cl ?

  9. I have a Dunns profile, a business address, business phone line, and my personal credit score is just under 680. I haven’t been able to get any lines of credit for my business where can I find venders to help build tradelines to my business credit.

    1. There are a number of large vendors that offer business tradelines and report to business credit reporting agencies, such as Office Max, Staples Business, Best Buy and Kinko’s Commercial. You might also want to ask any of your existing vendors or suppliers if they offer terms or can report your payment info to business credit agencies.

      1. Try Amsterdam Printing, Global Industrial, Grainger, Laughlin and Associates, Monopolize Your Marketplace, Quill Office Supplies, Strategic Network Supplies, Uline. Also lookup Credit Suite on youtube, and watch their videos. It explains a lot of this.

        1. Quill, Global Industrial, Grainger, offer more than just office supplies, I am in the mobile food business and these companies offer products that I use for mobile vending.

  10. I own an LLC that in turn owns majority share in two other LLC partnerships. I have EIN, bank accounts, and credit cards for all 3 entities. Is there a way to use the combination of the 3 entities financial activity to establish business credit?

  11. I have an entity established and have for more then 3 years but have never been able to obtain financing. I just filed bankruptcy due to bad personal credit which in turn have provided me a better credit score now then I had before I filed. It is now discharged but I don’t even know where to begin with establishing business credit any help would be appreciated. Thank you.

    1. Nadeen, you’re in the same boat as a lot of our small business customers. I suggest you start by getting a business credit card(s) and paying them off each month. Places like Home Depot or Staples will extend a small amount of credit to most businesses. Nav also offers a free business credit builder tool (BusinessLauncher) that can walk you through the steps. It’s completely free (no cc required ever) to sign up with Nav.

    1. If you have a business and a personal credit score you’ll probably be able to establish credit with some vendor accounts that will be more interested in the age of your business than your (personal) age. But take a look at the application. If they ask for your age, you may want to ask them directly whether that’s an issue before you apply.