female business owner holding a tablet
Suzanne Llanera
By: suzanne_llanera
Read in 17 minutes

How To Build Business Credit: The Definitive Guide

Knowing how to build business credit quickly is crucial for helping your company grow and prosper.

Your business score is just as important as your personal credit history. Small business owners often are not aware of this.

This article will discuss the features of your business credit score and how to build business credit quickly.

How To Build Business Credit: 15 Tips

Follow these tips to create or improve your business credit history.

Incorporate Your Business

First, try incorporating and organizing your small business into an LLC (Limited Liability Company).

This business entity helps people perceive your business as separate from your personal finances.

Get an EIN

Get an Employer Identification Number from the federal business bureau. Use it as often as you can for all your business transactions.

Register With Your Secretary Of State

This will give your business a legal entity status and protect your personal assets from business debts. You can register your business with state and local agencies.

#DidYouKnow
Not all States will require you to register your company.

Open A Business Bank Account

In any of your preferred banks, open a business bank account or a business checking account. Make sure you use the legal, legitimate name of your company.

Get A Business Telephone Number And Address

What should also help to build a credit score is setting up a separate, dedicated business telephone. Add a P.O. Box number if your small business doesn’t have a physical address.

Get A DUNS Number

Dun & Bradstreet (D&B) assigns this unique nine-digit identification number to businesses. Creditors use it to track the payment history of companies.

Having a DUNS number is the first step in establishing business credit. You can get one for your business by visiting the D&B website.

Make Sure Your Debt-To-Income Ratio Is In Top Shape

The debt-to-income ratio shows it you let your bills go beyond your disposable income. To calculate it, use the following formula:

Debt-To-Income Ratio = Monthly debts / Monthly income.

Your debt-to-income ratio should be below 40%.

Manage your debts carefully and pay them on time or pay them off entirely so you’ll have a positive business credit history.

Have A Business Credit File With All Credit Bureaus

To have a business credit file, you’ll need to make sure you register your company with all business credit reporting agencies:

  • Experian
  • Equifax
  • Dun & Bradstreet

You can do this by visiting their websites and following the instructions for creating an account.

After you’ve registered, it’s essential to make sure your contact information is always up-to-date. This includes your physical address, email address, and phone number.

Watch, Review And Assess Your Credit Reports

You need to look better into your business credit reports.

Are there any issues or gray areas that might affect your business credit score? Spot them early, analyze and work out the right way to address them, and sort of nip the problem in the bud.

Get Accounts That Report To Business Credit Agencies

The best way to start building business credit is to get accounts that report to business credit bureaus. That way, you can begin establishing a positive payment history and credit profile.

There are a few different types of accounts that share payment data with business credit reporting agencies:

Business Credit Cards

You can get a business credit card from several different issuers.

Make sure to use the card for business expenses only, never use more than your credit limit, and pay the balance in full and on time each month to build a positive history.

Business Loans

You can take a microloan from a traditional lender (such as a bank or credit union) or an online lender.

Make all payments on time and in full to build strong credit. Not all lenders report to bureaus, so ask your lender if they do.

#DidYouKnow
Business Loan vs. Personal Loan: Which Is the Best Option for Your Business?

Lease Agreements

You can often get business equipment, such as office furniture or vehicles, through a lease agreement.

Lessors report these agreements to business credit agencies, so making all payments on time and in full is essential.

Business Insurance

Insurers will often report payments to business credit bureaus. To get business insurance, you’ll need to fill out an application with an insurance company.

Be sure to shop around for the best rates and coverage.

Ask Your Suppliers For Trade Credit

Some suppliers will extend credit to businesses and report payments to credit bureaus.

When suppliers allow you to avail of products or services and pay after several days or weeks, you’d be enjoying trade credit. An example is net 30 accounts.

When reported to credit agencies, trade credits become like rockets that’ll prop up your business credit scores.

Pay On Time

A long history of paying bills on time is one of the best things you can do to build good business credit.

Payments are one of the most critical factors in business credit scoring. Make sure lenders or suppliers report them to the bureaus.

Regarding business credit scores, “late” is not such a good word. It’s definitely a no-no!

The payment habits you develop become a driving force that will make or break business credit reports.

Paying your debts on the dot will tell bankers and other businesses that your company knows how to pay its bills and should get your business credit profile soaring.

Take note that not all lenders report your payments to credit agencies.

Avoid Judgments, Bankruptcies, And Liens

All of these can have a significant negative impact on your business credit score. If you have any against your business, work on solving them soon as possible.

Just know that some might stay on your business credit report long after you fix the issues (for 7 to 10 years in most cases)

Don’t Commingle Your Personal And Business Finances

Keep your business and personal finances separate, and always use your business account for commercial expenses.

This will help keep your business credit score high and give lenders confidence that you’re a responsible borrower.

#CaminoTip
Avoid taking out loans that your small business cannot afford. Only borrow what you need and make sure you can comfortably make the payments.

Keep Tabs On Your Personal Credit History Too

Remember that personal credit also comes into play when applying for commercial loans. So please keep your debts in check, manage them closely and shy away from unnecessary credit inquiries.

Build Strong Habits With A Loan

Even if a lender doesn’t report your payments, getting a business loan should be on your to-do list.

This will allow you to create the habit you need as a business owner: paying on time.

Don’t worry; there are lenders out there that are willing to approve a loan even if you don’t have a previous credit history.

Camino Financial is one of those lenders that help business owners that don’t have previous credit histories. We want to see you become a successful business owner!

Apply now!

What Is Business Credit?

The business credit score is the number lenders use to determine your business’s creditworthiness.

This number is different from your personal credit score, and it’s important to understand how it works before you try to build business credit.

Your business credit score depends on your payment history, the amount of debt you have, the length of your credit history, and other factors.

Lenders use this number to decide whether or not to give you a loan and how much interest to charge you.

The higher your business credit score, the more likely you will get approved for a loan. If you have a low score, you may still be able to get a loan, but you’ll probably have to pay a higher interest rate.

How Is Your Business Credit Profile Calculated?

Business credit scores are risk assessments based on borrowers’ past management of their credit lines or loans.

The number helps loan providers make good decisions about the kind of people they should or should not deal with.

Experian, a reliable credit reporting agency in the U.S., tracks business credit and works out credit reports based on the following:

  • Payment data. Do you pay your business credit card, loans, and other debts on time? Have you been delinquent on your payments? How often? How many of these accounts are delinquent? What’s the percentage?
  • Collection agencies. The number of times your accounts reach these agencies.
  • How you use your credit. Do you spend your loan or credit in one big swoop? How much of it is in use? Against your credit limits, what’s the ratio of your delinquent balance? Is it high or low?

Depending on the information, your business’s credit history could be on the upside or downside. Translating into whether you’re a high-risk or a low-risk potential borrower.

#DidYouKnow
Not all your business credit reports will have the same score because each bureau calculates it differently.

Below we share an accepted scale of one to one hundred (1-100), widely used by the major business credit bureaus.

Business Credit Score Rating

Learn if you have a low or a high business credit score with this table:

Credit Score RangeCredit RatingDescription of Risk
76-100GoodLow risk
51-75FairLow to medium risk
26-50BadMedium risk
11-25BadHigh to medium risk
0-10BadHigh risk

You don’t want to appear in either of the three lowest ranks. The higher your number is, the more probability you’ll have to enjoy access to business capital.

You will have preferential treatment and better terms when you decide to take a loan.

Why Does A Good Business Credit Score Matter?

You may have to start seeking business credit to support your development plans at any point during the life of your business.

You can seek capital from new investors, banks, and lenders that offer different commercial loans.

Before anything else, know an important thing. Lenders don’t give out loans at the snap of a finger. Instead, they look at your background and determine if you’re a high or a low-risk borrower.

Your credit score is how lenders rate creditworthiness.

Of course, you’ve got your personal credit score, and as we have mentioned. But when you build a business credit report, it will help you get lower interest rates when applying for loans.

A solid business credit score will help you cut down on those tricky situations where you’ll need to pay upfront for products or services. And with those big suppliers, chances are you’ll get better terms and conditions.

Building Business Credit: Credit Cards vs. Business Loans

Credit cards and loans are two of the most common lending products that can help you build a business credit score. But which one is better?

Let’s put it this way; business credit cards are for whatever you could need right now. Short-term business loans are for benefits you’ll see in the short or medium term.

A business credit card can work for small purchases or work-related emergencies. However, if you are thinking about improving your business, you’ll face low credit limits and high interest.

On the other hand, a business loan offers a lump sum of money that’s usually bigger than a credit card’s credit limit. This allows you to grow your business significantly.

#DidYouKnow
You can use a loan to payoff credit cards.

It’s vital that you remember that not all lenders help you establish business credit. Ask your lender if they report your payments to one or more of the main credit bureaus.

The Best Way To Become A Responsible Borrower

When learning how to manage debt, you might get surprised to learn that a loan is a great way to learn to make timely payments.

You should take out a loan and start using it responsibly to create good repayment patterns.

A loan is one of the best ways to start becoming a responsible borrower because it also gives you the capital you need to grow your business.

The loan application process with Camino Financial will take just a few minutes and won’t affect your credit score. Furthermore, if you don’t have a previous credit history, don’t worry; we can still give you a loan.

We want to see you grow and thrive, apply for a business loan, and start building a successful future!

Apply For A Business Loan!

 

FAQs

How long does it take to build business credit?

It doesn’t take too long to build your credit.

Taking the proper steps and having regular credit activity can take three to six months for your file to be strong enough to calculate a credit score.

Can I raise my credit score in 30 days?

You can.

Besides the obvious (paying your bills on time, having a business bank account, or paying off debts), many tricks can help you build business credit in 30 days.

How do I build my business credit fast with no previous credit?

We recommend opening your first business bank account and getting a credit card. Look for a card with a low spending limit or a secured credit card – it will be easier to qualify for them if you have a limited credit history.

Does having two credit cards build credit fast?

It can, if you follow some golden rules: keep your credit usage below 30% of the credit limit and always pay your balances in full every month.

How to build a business credit score without using personal credit?

Some credit products don’t consider your personal finance, like business credit cards.

Some issuers don’t ask for your SSN when applying for a commercial credit card; they ask for your EIN.

This means that the application depends on your business credit score. Using the card will only affect (positively or negatively) your business credit score.

How to start establishing business credit?

To start working on your business credit history, follow some of these tips:

  1. Register your business entity and get a dedicated business phone number and address
  2. Get an employer identification number (EIN)
  3. Open a business bank account (and never mix your personal and business accounts)
  4. Get a business loan or credit card from a lender that reports to business credit bureaus

Can I improve my business credit score with the help of a loan?

Yes, you can, but only if the lender reports your payments to the business credit bureaus.

What’s the difference between business and personal credit scores?

The primary difference is that while personal FICO scores range from 300 to 850, business FICO generally ranges from 0 to 100. They work in different ways -one analyzes your finances, another one your business solvency.

 

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