Just how important is your business credit score? Having a strong credit score can improve your eligibility for small business loans and business insurance, and it may also improve the price you pay to your suppliers. Working to build business credit can help your company thrive and can give you greater opportunities for future expansions.
Here are some strategies that you can use to improve your business credit profile.
What Is a Business Credit Score?
A business credit score measures how well your business has handled its past financial commitments. Lenders and business partners will use this score to determine the business’s eligibility for the best rates and terms on business loans and other contracts.
Unlike your personal credit score, which ranges from 300 to 850, your business credit score can be evaluated on one of two scales: 1 to 100 and 101 to 992.
A low credit score isn’t always the result of late bill payments. For instance, it can take time for a new business to establish business credit. That’s why it’s important for business owners to monitor their business credit reports and take steps to build business credit.
Ways to Build Business Credit
There are no shortcuts when it comes to building your business credit. Still, every business owner can use the following strategies to improve their business credit profile.
1. Establish Your Business
Many entrepreneurs have experienced the awkward startup phase of owning a business. But make sure you cover all of your details. This means you should take the time to:
- Obtain a business phone number
- List your business in an online directory
- Develop a company website
- Use a consistent business address
- Create a professional email address
These steps won’t necessarily build your business credit right away, but they can give your business a greater sense of legitimacy with your clients as well as your lenders.
This step is foundational to all the others. Establishing a professional business identity early on can make it easier to secure affordable bank loans and selectively work with vendors who report to major credit bureaus.
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2. Open a Business Bank Account
In the early days of your business, it may be tempting to use your personal assets to cover a few business expenses. But this is unwise. It can make it more challenging to sort out your personal and business expenses during tax season. But more significantly, using your personal finances will prevent you from building your business credit profile.
Instead, open a dedicated business bank account as soon as possible. Using this account for all of your business expenses will help you build credit faster.
Most local banks and traditional financial institutions can offer business services. For best results, select a bank that reports data to the major commercial credit bureaus.
3. Register Your Business
Business owners should expect to register their businesses with their state. This will require you to declare your legal structure. By default, your business will be classified as a sole proprietorship, but you can also structure your business as a:
- Partnership (requires one or more business partners)
- Limited liability company (LLC)
- Corporation
Each of these has advantages and challenges of its own. The U.S. Small Business Administration site can help you choose the right structure for your business.
It’s not uncommon for some organizations to conduct business under a fictitious business name. If you’re a sole proprietor, you can register a doing-business-as (DBA) business name with your state.
You’ll also need to obtain an employer identification number (EIN) from the IRS. Depending on your industry, you may be required to obtain licenses and permits to operate.
All of this information will become a matter of public record, which allows business credit agencies to start developing your business credit profile.
4. Apply for a DUNS Number
You can get a DUNS number online, which will identify your business with the commercial credit reporting agency Dun & Bradstreet. Your business may already have a DUNS number, but if not, you can request one for free. This ensures that your business will be monitored by a major business credit bureau, which can help you build credit.
Other credit reporting agencies — including Equifax, Experian, and Creditsafe — will have numerical identifiers of their own. You won’t have to submit a request to ensure that you’re visible to these agencies.
5. Make Purchases with a Business Credit Card
One of the fastest ways to build business credit is through a business credit card. Assuming you pay the balance on time, you’ll build credit each time you use the card.
If you’ve already opened a business bank account, your financial institution will likely have options for a business credit card. You may even be able to benefit from reward points, cash back, or other incentives.
Just be cautious about how you use your credit card. Late payments can hurt your credit score, but so can your credit utilization ratio. This is the total of all your credit balances divided by all your credit limits. Said a different way, it’s the percentage of your monthly credit limit that you’re using. If you consistently keep your balance over 25% to 30% of your credit limit, you can harm your business credit.
To keep your credit utilization low, consider opening multiple business credit cards (though no more than two to three). This will allow you to juggle expenses between accounts, making you less likely to exceed this 25–30% threshold.
6. Keep Track of Your Monthly Bills
Nothing hurts your credit score like late payments. Sure, everyone knows how important it is to pay their bills on time, but first-time entrepreneurs can quickly become overwhelmed by the sheer number of professional responsibilities, allowing certain expenses to slip through the cracks. Even a payment made a day or two late can reduce your credit score.
Set aside a day on the calendar on which you pay all of your bills at once. Ideally, aim for a day at least a week before the final deadline, which can give you a buffer if you need to send physical checks through the mail.
You can also speed up the process by setting up automatic payments with your business bank account. This ensures that you’ll always make your recurring payments and avoid late fees and dings on your business credit score. But make sure that you account for these payments, or you could overdraft and face other penalties.
7. Rely on Suppliers that Report to Major Business Credit Bureaus
Whenever possible, work with suppliers, vendors, and financial institutions who report to the major credit bureaus. By doing so, you’ll have a better chance that your timely bill payments will be recorded on your credit report, which can contribute to good business credit.
Keep in mind that not every vendor or bank will report directly to these institutions. If you’re looking to build business credit, you may want to select business relationships that align with this goal.
When in doubt, ask your vendor or bank if they report to a commercial credit bureau. and which one. Try to aim for at least two to three vendor and business accounts that directly connect to a major credit reporting agency.
8. Use a Business Loan
Using small business loans can help you build your credit score. As with any loan, you’ll want to borrow carefully, invest the money wisely, and make all payments on time.
If you just launched your business, you may still be able to secure business loans through a nontraditional credit history. Ask your lender if you can submit records of bill payments or other financial documents to establish your creditworthiness. You’ll then be able to start building credit the traditional way once you repay the loan.
You can also look into loans guaranteed by the government’s Small Business Administration.
If you don’t need financing and your priority is building your business credit score, look into Credit Strong’s credit-builder loans for businesses.
9. Monitor Your Business Credit Score
One of the easiest ways to build business credit is by correcting errors on your business credit report. You can receive a free business credit report each year from the major business credit bureaus:
- Experian
- Equifax
- Dun & Bradstreet
Checking your business credit won’t hurt your score if you only pull your report once each year. As a business owner, make a habit of performing an annual checkup to assess your business’s financial health.
If you discover an error in your credit history, report it immediately to the bureau that supplied the report. Erasing that error may vastly improve your business credit score. Remember that errors can take time to fully disappear from these reports, which is why it’s important to locate and report errors as soon as possible.
How Long Does It Take to Build Business Credit?
Building strong business credit doesn’t happen overnight. If you’ve just launched your company, it may take roughly a year before you develop a strong credit profile. Established businesses that practice these strategies might see improvements after a year.
Watch Your Numbers Carefully
The importance of your business credit score can’t be overstated. But by adopting a few basic strategies, you’ll be in a great position to build or improve your business credit, which can help you secure the financing you need to launch, maintain, or grow your business.
