What is business credit, and how can I build it?

Woman clipping a dog's hair at her small business while thinking about how to build small business credit with a business credit card.Image: Woman clipping a dog's hair at her small business while thinking about how to build small business credit with a business credit card.

In a Nutshell

Having a solid business credit profile might help you secure more-desirable loan terms, qualify for better premiums and negotiate with vendors. But building business credit can take time and attention to detail.
Louis DeNicola is a personal finance writer and has written for American Express and Discover. Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when posted.
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Simply put, business credit signals your company’s ability to handle its finances, purchasing power and debt.

Like personal credit, business credit is something you build over time. Business credit considers several factors and is expressed in the form of business credit scores.

Additionally, both business credit and personal credit can affect the rates you might pay for goods and services. For example, as a business owner, you may pay lower insurance premiums if your business credit scores are high. You might also qualify for lower interest rates on small business loans or lines of credit if you have good business credit.

These may all come in handy if you’re looking to negotiate longer terms from vendors, which might give you more space to manage cash flow.

We’ll cover the basics of what business credit is, how it’s used, and tips on how you can build your business’s credit.



Business credit: What you need to know

Before you can establish credit for your business, you must legally register it as a business entity. You’ll want to consider the business structure that’s right for your business type to build credit with the business credit-reporting agencies.

How does business credit work?

Business credit reports are typically created when vendors, suppliers or creditors report a business’s accounts and activity to a business credit bureau. This activity helps to generate the information that informs your business credit scores. Some scores also consider information from the owner’s personal credit file and business repositories, such as the Small Business Financial Exchange.

Who needs business credit?

Any eligible business may benefit from establishing and building good business credit. But business credit typically comes into play when you want to borrow money or pay vendors and suppliers on terms (like paying 30 or 45 days after receiving an invoice).

Is business credit the same as personal credit?

While they seem to function in much the same way, business and personal credit are not the same. But they serve a similar purpose: to help lenders and vendors determine how likely you are to repay a loan or other financial obligation taken out on behalf of your business. Though some business credit scores consider your personal credit, personal and business credit profiles are separate.

What is business credit used for?

Your business’s credit can affect a variety of decisions, including the following:

  • Your eligibility or rates on loans, including Small Business Administration, or SBA, loans
  • The business’s insurance premiums
  • The net terms and credit limit you receive from vendors and suppliers
  • Your ability to raise money from investors
  • Whether you qualify for contracts with other organizations

7 tips for building business credit

Building business credit can be a little more complicated than building personal credit. And, as with your personal credit, it can take time to build good business credit scores. But whether you’re opening the doors on a new business or you’ve run a business for years and are just learning about business credit, you can follow these seven steps.

1. Check your business (and personal) credit

Don’t know if your business has credit? No worries: There are several ways to check your business’s credit reports.

Unlike with personal credit reports, there isn’t a legal requirement for the bureaus to give you free access to your business credit reports. All three of the major business credit bureaus — Dun & Bradstreet, Equifax and Experian — will give you a full copy of your business credit report for a fee. Some free services may also give you access or summaries of your business credit reports and scores.

Is there just one business credit score?

Nope. Just like with consumer credit scores, competing agencies create and sell different business credit scores. Dun & Bradstreet, Experian and Equifax all create their own business credit scores. Some lenders and vendors may also turn to specialty business credit reports when evaluating your business.

2. Establish your business credit

If you didn’t find anything when you went to check your business’s credit reports, it’s possible that your business hasn’t established any credit yet.

This might happen if you use a personal credit card for your business’s expenses, as your payments will only wind up on your personal credit reports.

Although some business-scoring models can generate a business credit score based on your business and personal credit history and other business financial information, others rely solely on information related to your business.

To establish business credit, you may first need to take the following steps:

  • Incorporate your business or form an LLC (limited liability company). This ensures your personal and business identities will be separate.
  • Get a federal employer identification number. This is a free service offered by the IRS. An EIN acts a bit like a Social Security number for a business entity.
  • Open a business bank account. Make sure you use the business’s legal name.
  • Get a dedicated business phone line. You’ll also want to make sure it’s listed under the legal business name.
  • Register with Dun & Bradstreet to get a D-U-N-S number. This is a nine-digit number used to identify each physical location of your business. It’s free for all businesses.

Business credit bureaus can use your EIN or D-U-N-S number to identify your business’s activities and payments when reported, and business credit-scoring systems can use the data to generate scores.

Business credit scores can also take into account public records, such as legal filings, liens and your business’s size and industry. But a history of on-time or early payments can go a long way in helping to create a strong financial track record.

3. Apply for a business credit card

To build your business credit profile, you’ll need accounts and vendors that report your payments to the credit bureaus. A business credit card can be a good start.

Business credit cards may also offer benefits and rewards programs that are more helpful to business owners than the features or rewards on a personal credit card.

Read our guide to business credit cards for more information and tips.

4. Work with vendors that report payments

In addition to opening a business credit card, you can build your business’s credit by opening accounts with vendors that report payments to the business credit bureaus.

You may already have vendors that you pay on terms, but ask (rather than assume) that they report the payments. If they don’t, consider opening accounts with new vendors after verifying they’ll report your payments.

5. Pay vendors early

One widely used business credit score, the Dun & Bradstreet PAYDEX® score, ranges from 1 to 100, with 100 being the best score. The score is based on your payment history with vendors.

Paying on time can get you a good score — up to 80. But what some business owners may not realize is that to get the highest PAYDEX score, you need to pay vendors early.

6. Use your business credit to manage your cash flow

One potential benefit of building your business’s credit is you may become eligible for lower rates and better terms with vendors. Both of these can help you manage your cash flow — the lifeblood of many businesses. You can also use a business credit card to manage your cash flow.

A credit card’s grace period lets you avoid interest charges, while lines of credit might accrue interest immediately. Heads up, though: If you revolve a balance on your credit card, the interest rate may be higher than what you’d pay on your credit line.

7. Monitor your credit reports

Errors and fraudulent activity can affect your business’s credit and make it difficult — and more expensive — to borrow money. Make a point of checking your business credit reports for errors a few times each year. If you find one, you can try to get it corrected by filing a dispute with the respective business credit bureau.


Next steps: If you don’t have business credit, consider these alternatives

It can take time to build your business’s credit, which is one reason to start early. But having good personal credit can also be important. Especially for small businesses, lenders may check an owner’s credit before offering a business loan or line of credit.

If you have solid personal credit, you might qualify for business loans or lines of credit with favorable rates and terms. Personal loans and credit cards may also be an option, but it’s best to keep your business and personal finances separate unless you run a sole proprietorship. (Even then, separating the finances can make filing taxes easier.)

When you need financing but are working on your business and personal credit, there may be other options, such as merchant cash advances. But read the terms carefully and proceed with caution — financing that doesn’t require good credit tends to be expensive.


About the author: Louis DeNicola is a personal finance writer and has written for American Express, Discover and Nova Credit. In addition to being a contributing writer at Credit Karma, you can find his w… Read more.