How to Build Business Credit Quickly: The 10 Best Ways

Georgia McIntyre

Georgia McIntyre

Manager, Content Marketing at Fundera
Georgia McIntyre is the manager of content marketing at Fundera. She has written extensively about small business finance, specializing in business lending, credit cards, and accounting solutions. Georgia has a B.A. in Economics from Colgate University.
Georgia McIntyre
Advertiser Disclosure

If you’ve ever been on the market for a consumer loan, such as a home loan, you’ve probably got a handle on your personal finances. You know where your personal credit score stands month-to-month and how personal credit impacts your ability to qualify for financial products.

But as a business owner, you might not know anything about your company’s business credit rating—why this is important, what your rating is, or how to establish and build a business credit history.

If you’ll ever need credit for your business in the future—with a small business loan or business credit card, for example—then your business can’t just get by with a strong personal credit score. That definitely will help, but you also need to establish a positive business credit history.

Fortunately, there are some predictable, tried-and-true methods for getting the ball rolling. Find out how business credit works, how you can check your business credit file (for free), and how to build business credit as quickly as possible.

What Is Business Credit?

Before we dive into how to establish business credit, let’s clear up what a business credit score actually is and why it matters.

Your personal credit rating is a number that captures your reliability as a borrower. In the same way, a business credit rating conveys whether your business is a trustworthy borrower.

The business credit reporting agencies—Dun & Bradstreet (D&B), Experian, and Equifax are the three main ones—collect information from the vendors and creditors you do business with. That borrowing information gets processed through a credit reporting algorithm to establish your business credit.

The number that a business credit reporting agency spits out, however, is on a different scale than your personal credit. Whereas personal credit scores range from 300 to 850, the most popular business credit score, which is D&B’s Paydex Score, ranges from 1 to 100. Higher scores indicate that a business is trustworthy and likely to pay a bill or loan back on time.

Why Building Business Credit Is Important

Building business credit is important for three main reasons:

  1. Getting small business financing
  2. Supporting relationships with suppliers and vendors
  3. Protecting your personal credit

Just as the strength of your personal credit score determines what types of credit products you qualify for and the rates and terms you get, your business credit score is a key factor in a lender’s decision to work with you. Lenders are likely to extend a small business loan to your company only if they see that your business has a good track record of paying your accounts on time, and in full.

In the same way, suppliers only work with businesses that have a track record of paying their bills on time. Without good business credit, it’s also tough to convince a vendor to offer you invoice terms, such as NET 30 or NET 60.

When you have strong business credit, you can more easily apply and qualify for financing under your business’s name. That means you don’t have to put your personal credit on the line very often. Building a strong business credit score will open up the doors to affordable, long-term credit for your business.

how to build business credit

What’s In Your Business Credit File?

Before setting out to establish business credit, it’s helpful to know if you already have a business credit file and what’s in there. That way, you know where you stand currently and can figure out the best ways to improve your credit rating.

Many business owners are surprised to know that they already have a business credit report in their company’s name. Some business credit bureaus, including Experian and Equifax, pull public record information, such as collection data and court records, to create your business credit file and generate your score. So even if you haven’t actively created an account with a business credit agency, they might already have enough information about you to compile a business credit report.

There are several places online that let you check your business’s credit history for free. At Fundera, we offer a free summary of your business and personal credit scores, and  alert you to changes in your credit reports. This helps you become an informed borrower and get access to the best financial products for your company. Here’s a sample business credit report from Equifax showing different types of business loans and business accounts.

By checking your credit file, you can see if there are mistakes in your business credit history. Just like errors on a personal credit report, mistakes in a business credit report can bring down your score. Each bureau has its own process for disputing errors, and we recommend regularly reviewing your reports to ensure that they are error-free.

Sample business credit report from Experian

Source: Experian

How to Build Business Credit Quickly: The 10 Best Ways

For many small business owners, establishing business credit can seem like a mystery. But once you take control over your business’s credit history, you’ll start to understand it more and see how different actions affect your business credit rating.

One thing to keep in mind is that your business credit rating can vary across the bureaus. This is because the different bureaus have different rules for opening a business credit file. Dun & Bradstreet, for example, requires you to apply for an account before they open a business credit file in your name. However, Experian and Equifax pull public record data, such as court documents, business filings, and collection data, to create a company’s file.

To further complicate matters, each bureau has different scoring systems. And not all vendors and creditors report to all of the bureaus, so your score will differ between each bureau.

While all these details might make it seem complicated to build business credit as a startup, there are some tried-and true-methods for establishing business credit. All of the following steps could impact your business credit score.

Here are 10 steps to make sure you’re building business credit:

1. Register Your Business Entity

Your business credit history is separate from your personal credit history. To keep these two things separate and maximize your business credit score, you need to set up a registered business entity.

Unincorporated business entities—a general partnership or sole proprietorship—are the easiest to work with in terms of starting up and managing paperwork. But with these structures, there’s no legal or financial separation between the owner and the business. When you choose to work with a vendor or apply for a loan, you’ll have to provide your personal social security number. As a result, your activity on your business accounts will be reflected on your personal credit report.

If you want to establish business credit, then you’ll want to choose one of the following structures:

  • C-corporation  A C-corporation gives you and your business legal and financial separation. Corporations are considered separate legal cities, and a C-corporation is ideal for a business that’s planning to issue stock or go public in the future.
  • S-corporation  S-corps are a pass-through entities in which business’s profits are only taxed at the individual level. S-corps are also considered separate legal entities.
  • Limited liability company (LLC)  An LLC is another type of incorporated business entity with liability protection and financial separation between you and your business. An LLC is easier to manage than a corporation and offers more tax flexibility.
  • Limited liability partnership (LLP) – An LLP is a registered business entity that’s popular among professional industries, such as lawyers and doctors.

While it’s important to keep your ability to build business credit in mind while making your decision on how to structure your business, it’s not the only thing you should be thinking about.

If you’re unsure what exactly you should be focusing on, consult a business attorney or an accountant to determine how you should structure your startup.

You can apply for an EIN for free at IRS.gov.

Source: IRS

2. Get an Employer Identification Number (EIN)

The IRS uses an employer identification number (EIN) to track businesses for tax purposes. Just like your Social Security number serves as your identification number for personal taxes, your EIN serves the same purpose for your business.

Sole proprietorships, partnerships, and  single-owner LLCs can just use the owner’s Social Security number for tax purposes (as long as they don’t have any employees). But most other types of businesses need an EIN.

Even if you’re not required to, it’s a good idea to get an EIN anyway. One of the biggest benefits of an EIN is that it can help you establish business credit. And an EIN is free and easy to apply for on the IRS’s website.

When you eventually apply for a loan or a credit card for your business, you’ll usually be asked to either provide your Social Security number or EIN on the application. If you only have your Social Security number to offer, then you can rely only on your personal credit to help you qualify and get a good rate. But if you have an EIN, then you can rely on your business credit history as well.

3. Open a Business Bank Account

As a business owner, keeping your business and personal finances separate. This is an important practice for many reasons, but is especially crucial in regards to establishing business credit.

Opening a business bank account is the first step to drawing a line between business and personal expenses. Business credit bureaus will easily be able to see what money you’re taking out of and putting into your business, and will report that information on your business credit report.

Once you have an EIN, head to a bank for a checking account. There are many local and national banks that offer free business checking accounts to consider.

Having a business bank account is a crucial step to establishing business credit. It will not only provide a bank reference for the three credit reporting agencies, but will open doors for better credit accounts in the future—the best small business lenders look for borrowers with business bank accounts that have been established for at least a couple years.

4. Establish a Dedicated Business Address and Phone Number

While this next tip might seem like a simple step, getting a dedicated business address and phone number will solidify your business’s separate existence. Having this is a small, but important step towards establishing business credit because it will allow you to register with business directories.

Directories like the Better Business Bureau, YelpYP.com, and Angie’s List require businesses to have an address and phone number to sign up. Business credit reporting agencies collect information from these directories, so it’s important to have correct and consistent contact information listed on all of the popular directories.

Also, when you set up a dedicated phone line for your business, you’re establishing your first, simple trade credit relationship with the phone company. This gets reported to credit agencies and helps in building business credit.

5. Apply for a Business DUNS Number

Dun & Bradstreet is probably the most well-known business credit reporting agency. Their Paydex business credit score is commonly used by suppliers and creditors. So if you want to establish business credit, it’s a good idea to open a credit file with this agency.

To do that, you’ll need to register for a DUNS—a Data Universal Number System. The DUNS system is a numerical identification process for business entities. When you apply for one, you’ll receive a unique nine digit code. The process is completely free, but takes up to 30 days.

Having a DUNS isn’t a requirement for businesses, unless you’re applying for a federal government contract, grant, or SBA loan, and it’s not a system that’s managed by the government. But suppliers and lenders all over the US and internationally use D&B business credit scores, so if you’re interested in establishing business credit for your startup, applying for a DUNS is a good idea

6. Establish Trade Lines With Your Suppliers

If you’ve followed step one through five, then you have already laid a solid foundation upon which to build business credit. If you want to keep establishing business credit, there are some more best practices.

One is to maintain and establish good relationships with vendors and suppliers. Just as with your personal credit rating, your business credit score will build as you bring on a variety of different suppliers, vendors, and lenders—given that you maintain a good relationship with them.

As you buy more supplies, inventory, or other materials from third-party suppliers, those purchases can become relationships—and help you establish business credit. Especially if those suppliers and vendors extend trade credit, meaning they allow you to pay several days or weeks after you receive the items you ordered (e.g. NET 30).

While this credit isn’t coming from a traditional lender, it is similar to a loan. Paying your vendor or supplier on time and in full (maybe even early) will help you build your business credit—just like paying consumer credit cards on time helps you build your personal credit.

Lucas Horton, a gemologist and owner of Valeria Fine Jewelry, said trade lines helped his business credit:

“I opened four memo accounts with diamond sellers who reported to business credit bureaus. According to Experian, my business now has a B rating (up from a D) due to lack to information. I am not large enough to engage in things that would build my credit [even further] like taking out a loan, so that is probably as high as I will ever get. However, for my needs, it is high enough to get me the credit I require.

A memo account is when they send you diamonds and you have a certain amount of time to pay for it rather than paying for it upfront. Most of the larger companies I have accounts with at least report to Dun and Bradstreet or Experian.”

The key is to choose suppliers, like Horton did, who will report your payments to the business credit bureau. Not all do, and if your supplier doesn’t report to the business credit agencies, then your on-time (or early) payments won’t help you build your credit. Popular suppliers like Uline, Quill, and Grainger report to business credit bureaus. As long as you pay on time and in full, you’ll boost your business credit score.

7. Get a Business Credit Card or Line of Credit

Many startups and small businesses use loans and credit lines to finance the operation and growth of their business. Not only is this type of credit crucial for keeping a business running smoothly, but using it will also help with establishing and building business credit.

As a first step, consider applying for a business credit card to cover day-to-day purchases for your business. This will this help solidify the separation between your personal and business finances, further establishing business credit.

A business credit card gives you access to a revolving credit account—you borrow money when you swipe the card, and you pay the credit card issuer back before each statement. When you repay the amount you borrowed, your available credit limit gets replenished to the original amount.

Nate Masterson, CEO of beauty company Maple Holistics, said he relied on business credit cards to improve his company’s business credit standing:

We decided to use business credit cards because … they play an essential role in building your company credit profile. This is particularly useful for small businesses who rely on loans and grants. Furthermore, because there are several major card issuers which report your business activity to your personal credit report, this can be a great way to boost your personal credit, if you are responsible.

Pay your bills early, or at the very least on time. This is the number one, most important rule that will get your business a perfect credit score with business credit bureau. We made sure to only use our business card on purchases we were confident we could pay off in full by the end of each month.

A business line of credit works in much the same way as a credit card, minus the physical card. Rather, the funds live in your business bank account, and you can withdraw money on as needed basis. You then pay back what you borrow to reset your balance.

The act of borrowing and repaying money on a business credit card or line of credit will help establish business credit—given that you’re paying on time (or early, if possible) and in full.

If you’re having a hard time qualifying for a regular business credit cards, try secured business credit cards. A secured business credit card is “secured” by a funds deposit that you make against your card.

8. Borrow From Lenders That Report to the Business Credit Bureaus

If you’re repaying your credit cards and loans on time and in full, you can be proud of your stellar payment history. However, you’ll want to be sure that you’re actually getting recognized for this good behavior.

Make sure that you try to work with lenders who report to the credit bureaus. Ideally, they should report to one or more of the three major business credit bureaus–D&B, Experian, or Equifax. Most banks and traditional financing institutions will routinely report borrowers’ repayment histories to business credit reporting bureaus. Some online lenders, however, don’t file reports to business credit bureaus. Check into a lender’s policy on this before you apply!

9. Keep Your Information Current With the Bureaus

Each business credit bureau collects different information and has different scoring models. Plus, different suppliers and different lenders report different kinds of data.

Because a lender or supplier could pull your business credit report from any or all of the three popular bureaus, it’s important that you keep an eye on each of your reports—maintaining all three of them.

These bureaus allow you to update basic information about your business (like number of employees or years in business) and upload financial documents. The more complete your profile is at each of the business credit reporting bureaus, the better.

10. Borrow Responsibly

When it comes to establishing and building business credit, your mantra should be exactly the same as it is with building personal credit: borrow responsibly. With steady, responsible borrowing habits—drawing from a mix of business credit accounts, and paying those accounts on time and in full—you’ll see your business credit score improve.

As with a personal credit rating, your business credit rating will suffer if you apply for too many credit accounts over a short period of time. Make sure to space out your business credit card or business loan applications.

And just like your personal credit score can get dinged by too much debt, so can your business credit score. If you’re feeling cash flow crunches or are having trouble paying your bills as a result of too much debt, consider options like refinancing or debt consolidation to make payments more manageable.

Building Business Credit Takes Time, But It’s Worth the Effort

In the end, there are several factors that impact your business credit. The length of your business credit history, your mix of credit accounts, and your credit utilization all matter for building your score—but your payment history is the most important factor.

By paying lenders and suppliers on time, or early, whenever possible, you can establish business credit for a startup and build your business credit score over time.

Once you’re finished establishing business credit, keep your business credit positive by being the most responsible borrower you can be over your business’s lifetime! You’ll thank yourself later when you qualify for the best financial products, at the lowest rates and the most favorable terms.

Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone. They haven’t been reviewed, approved, or otherwise endorsed by any of the companies mentioned above. Learn more about our editorial process and how we make money here.
Georgia McIntyre

Georgia McIntyre

Manager, Content Marketing at Fundera
Georgia McIntyre is the manager of content marketing at Fundera. She has written extensively about small business finance, specializing in business lending, credit cards, and accounting solutions. Georgia has a B.A. in Economics from Colgate University.
Georgia McIntyre

Our Picks