How to build business credit

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

Building business credit could lower your business insurance premiums and help you get approved for a low-rate business loan. It starts with establishing your business and applying for a business credit card.
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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Business credit takes time to build, but it may open doors to greater amounts of capital.

As with personal credit, strong business credit can lead to lower insurance premiums or interest rates. It can also help you get approved for a lease, business loan or business line of credit and secure better terms from vendors.

Building business credit can also help you separate your personal finances from your business’s finances.

After starting a business, you may find that you need to sign a personal guarantee when taking out a business loan or opening a business credit card. This guarantee basically means that you’ll be personally liable for the debt if the business is unable to pay it back — a situation that could put your personal assets at risk. Once you establish business credit, you may qualify for a business loan or credit without a personal guarantee.

Now that we’ve reviewed the potential benefits of business credit, let’s look at seven ways to start building and managing yours today.

How to build business credit

  1. Check your business (and personal) credit
  2. Establish your business credit
  3. Apply for a business credit card
  4. Work with vendors that report payments
  5. Pay those vendors early
  6. Use your business credit to manage your cash flow
  7. Monitor your business credit reports

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, and you can get free access to your Experian and Dun & Bradstreet reports through Nav, a company that helps business owners build and manage their credit.

Is there just one business credit score?

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

Gerri Detweiler, Nav’s head of market education, suggests that you also review and learn about building your personal credit. “Many business owners find that having both good business and personal credit is essential.”

She continues: “Some lenders may check the owner’s personal credit, especially when a business is young. Others may check business credit, and some check both.”

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, and it also serves to identify you as a business entity. Apply for an EIN here.
  • Open a business bank account. Make sure you use your legal business name.
  • Get a dedicated business phone line. You’ll also want to make sure it’s listed under your 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 required to register with the federal government for contracts or grants.

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 and reports.

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.

Is business credit the same as personal credit?

They’re not the same, but they serve a similar purpose, which is to help lenders and vendors determine the creditworthiness and financial capability of you or your business. Although some business credit scores take your personal credit into consideration, your personal and business credit profiles are separate.

5. Pay those 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. “Credit cards may offer fast and flexible financing at interest rates lower than other types of quick funding, such as merchant cash advances,” says Detweiler. “The key is to make sure the overall cost (including interest paid) will result in a profit for the business.”

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 business credit reports

Errors and fraudulent activity can impact 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.

Bottom line

It can take time to build your business’s credit, which is why it’s important to start early. Whether or not you foresee needing a loan or line of credit, establishing your business credit now can help give you a safety net — and potential savings — in the future.

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.