9 Best Ways To Build Business Credit

How to Build Business Credit Fast?

If you’ve ever applied for a personal loan, such as a home mortgage, you undoubtedly know what you’re doing with your money. You’re aware of your personal credit score and how it affects your capability to qualify for financial services. However, as a business owner, you may be unaware of the importance of your company’s business credit rating, as well as how to develop and build business credit.

If you ever need credit for your business, such as a small business loan or a business credit card, you won’t be able to get by with simply an excellent personal credit score. While your creditworthiness will help, you’ll also need to establish a good corporate credit history. It’s critical to know the answers to these questions before you can begin building company credit:

• What is the definition of business credit?
• What is the significance of business credit?
• What are the advantages of having a business credit card?
• What is the procedure for obtaining business credit?

As a result, we’ll cover all you need to know about business credit in this article, including how it works, how to check your current credit file (at no cost), and how to build credit for your business quickly.

What Is Business Credit and How Does It Work?

Let’s start from the beginning before we go into how to create business credit:

What is the Definition of Business Credit?

Essentially, you establish company credit based on your business’s financial history—that is, how you manage any credit that has been provided to your organization, such as credit cards, financing, credit lines, trade lines from vendors, and more. Business credit is related to your employer identification number, or EIN, rather than your social security number.

Finally, just as your personal credit demonstrates your creditworthiness as a borrower, your business credit indicates whether or not your company is a reliable borrower.

What You Need to Know About Business Credit?

Let’s go through corporate credit in more detail. One of the most critical distinctions between a company and personal credit is that corporate credit is linked to your EIN.

As a result, as you engage in various financial activities related to your business—opening a bank account, obtaining a credit card, and paying vendors, that information forms your credit rating. It is reported to credit agencies that specialize in business credit.

Experian, Dun & Bradstreet (D&B), and Equifax are the three major commercial credit reporting companies. Each company gathers data from the vendors and creditors with whom you do business, as well as judicial filings and public records.

They next calculate your business credit score as a numerical value using a credit reporting algorithm. Unlike a consumer credit score, which is calculated using a standardized evaluation process, your company credit score will vary depending on the credit bureau, as each has its own method for determining your score.

However, your company credit score will generally range from 1 to 100, with a higher score suggesting creditworthiness, which means you’re more inclined to pay a bill or loans promptly.

Furthermore, while each credit bureau has its unique review process, your company credit rating will be influenced by things like:

• Overall Credit: Credit history, credit use, credit type, late payments, balances, and trends are all factors to consider.
• Business Demographics: The company’s size, the number of years it has been in operation, and the industry risk are all factors to consider.
• Publicly Available Records: Bankruptcies, judgments, and liens: Their amounts and frequency.

When it comes to building business credit, acts like paying on time, varying the sources of credit you use, and not exceeding your credit limit will all help your company credit history and, as a result, your corporate credit score.

Missed payments, outstanding balances, and recent judgments, on the other hand, can all affect your credit score.

The 9 Most Effective Ways to Quickly Build Business Credit

You should now have a good understanding of how business credit works. Early on in the life of your organization, you’ll want to concentrate your efforts on establishing business credit.

Although obtaining business credit takes time, by taking charge of your company’s credit history, you’ll have a better understanding of how different actions affect your credit rating over time.

As a result, if you’re looking for a quick way to build business credit, there are a few tried-and-true options. All of the methods below can impact your business credit score, preferably for the better.

1. Create a Business Entity and Decide on a Structure

Your corporate credit history is distinct from your own credit history, as previously stated. As a result, the first step in establishing business credit is to keep your personal and business finances apart. To keep these finances separate, you’ll need to create a recognized corporate entity. 

Unincorporated company entities, such as a general partnership or a sole proprietorship, are the easiest to set up and manage paperwork for.

However, there is no financial or legal distinction between the business and the owner in these structures. In this instance, you’ll have to supply your own social security number while working with a vendor or applying for a loan.

As a result, your business account activity will appear on your individual credit report.

If you want to create business credit, you’ll need to have one of the following legal structures:

• C-corporation – A C-corporation separates you and your company legally and financially. Corporations are treated as legal entities in their own right, and a C-corporation is perfect for a company that plans to issue shares or goes public later.
• S-corporation — An S-corporation is a pass-through entity in which the firm’s profits are taxed exclusively at the personal level. S-corporations are also recognized legal entities in their own right.
• Limited Liability Company (LLC) is a type of established business entity that provides liability protection and fiscal separation for both you and your firm. A limited liability company (LLC) is easier to administer than a corporation and provides more tax flexibility.
• Limited Liability Partnership (LLP) – An LLP is a type of registered company entity that is common in professional fields like law and medicine.

2. Obtain an Employer Identification Number (EIN)

Obtaining an EIN is the next stage in establishing and building business credit. For tax purposes, the IRS utilizes an employment identification number (EIN) to track companies. Your EIN serves the same role for your business that a social security number does for your personal taxes.

For tax reasons, sole proprietorships, partnerships, and single-owner LLCs can generally utilize the owner’s social security number (as long as they don’t have any employees). However, most other sorts of businesses require an EIN.

Even if the structure you choose does not require you to have an EIN, it’s a good idea to get one anyhow. One of the most essential advantages of having an EIN is that it can assist you in establishing business credit.

Furthermore, an EIN is free and simple to obtain through the IRS website.

When you apply for credit for your organization, you’ll almost always be required to supply either your social security number or your EIN.

If all you have is your social security number, you’ll have to rely on your credit profile to qualify and get a decent rate.

As previously stated, if you have an EIN, your company credit is related to this number, and you can utilize your credit history to apply for credit products and business funding.

3. Open a Business Bank Account

As previously stated, it is critical to keep your personal and business funds separate for the purposes of building business credit (and in general).

Aside from deciding on a business entity, having a business bank account is an important step in separating business and personal costs. Corporate credit bureaus will quickly see what money you’re taking out of and putting into your business if you create this account and record that data on your business credit report.

As a result, after you get an EIN, you should research your alternatives and open a business checking account for your company. Of course, it’s crucial to use your account after you’ve created it.

This bank account should only be used to pay for company expenses, such as utilities and rent, as well as expenses like your business cell phone. These purchases can also help you develop business credit if you pay them in full every month. 

Overall, opening a business account will not only provide a financial reference for the three credit bureaus. It will also open doors for higher credit limits in the future—the best small business lenders prefer borrowers who have had a business bank account for at least a couple of years.

4. Create a Separate Business Address and Phone Number

Although having a dedicated company phone number and address may appear to be a simple step, it will confirm your business’s separate existence. This is a tiny but crucial step toward establishing company credit because it allows you to register with local business directories.

Businesses must have a location and phone number to register with databases like the Better Business Bureau, YP.com, and Angie’s List. Because these directories collect information for business credit reporting agencies, it’s critical to have accurate and consistent contact information included on all of the popular sites.

You’re also establishing your initial trade credit relationship with the phone company when you set up a separate phone line for your business. This information is reported to credit bureaus and will assist you in obtaining business credit.

5. Obtain a DUNS Number

Dun & Bradstreet is the most well-known of the three business credit bureaus mentioned above. In truth, their Paydex rating is the most generally used company credit score among suppliers and creditors. As a result, opening a credit file with this company is critical if you want to build business credit.

You’ll need to register for a DUNS (Data Universal Number System) to do so. The DUNS system is an identification of numerically identifying business entities.

When you register for one, you’ll be given a nine-digit code that’s unique to you. The process is absolutely free and can be done on the Dun & Bradstreet website; however, receiving your DUNS number can take up to 30 days.

A DUNS number isn’t required for businesses unless they’re asking for a federally funded grant, contract, or SBA loan (although it’s not a government-run system).

Nonetheless, D&B company credit scores are used by everyone from national to international suppliers and lenders, so if you’re attempting to establish new business credit for your startup, getting a DUNS is a must.

6. Create Vendor Trade Lines

You’ve already set a sound basis for establishing company credit if you’ve followed steps one through five. There are several more best practices you should follow to keep developing business credit.

Maintaining and establishing solid relationships with suppliers and retailers is one of the best practices in establishing business credit. You’ll establish company credit the same way you’ll grow personal credit by bringing on a range of different distributors, vendors, and lenders—as long as you keep a solid relationship with them.

As you purchase more supplies, merchandise, or other things from third-party suppliers, those transactions might turn into relationships, which can help you grow business credit.

As previously said, it will be especially advantageous if your vendors offer trade credit, which means you can pay several days or even weeks after receiving the goods you purchased (e.g., NET 30).

This credit is similar to a loan, even though a typical lender does not provide it. Paying your supplier or vendor on time every month (maybe even early) will help you establish good business credit, just as paying your personal credit cards on time will help you establish good personal credit.

7. Apply for a Business Line of Credit or Credit Card

Many startups and small enterprises take out loans and lines of credit to fund their operations and expansion.

This form of credit is essential for keeping a company functioning smoothly, but it also aids in establishing and growing business credit.

As a first step, you might choose to apply for a business credit card to pay your company’s day-to-day expenses. Using a company credit card will help you separate your personal and professional life, which will help you create business credit.

8. Only Borrow from Lenders that Report to the Business Credit Bureaus

You can be pleased about your excellent payment history if you pay off your loans and credit cards on time and also in full. However, you’ll want to make sure that you’re being recognized for your exceptional work and that you’re acquiring business credit as a result of your progress.

As a result, you should make every effort to deal with creditors who submit to credit reporting agencies. Lenders should ideally report to some or all three major commercial credit bureaus: D&B, Experian, or Equifax.

Fortunately, most banking and conventional financing institutions will frequently record borrowers’ repayment history to corporate credit reporting bureaus, so this is less of an issue. However, some online lenders do not report to corporate credit bureaus.

To guarantee that a loan helps you grow company credit, look into the lender’s policies before applying.

9. Keep your Company’s Information Up to Date with the Bureaus

Every business credit bureau gathers data differently and uses different rating methods. Furthermore, different vendors and lenders provide various types of data.

Because a lender or supplier could pull your company credit history from any or all three major bureaus, you must keep track of each of your reports and maintain them all.

Most bureaus allow you to modify standard business information (such as the number of workers or years in operation) as well as upload financial records. The more detailed your profile is, the better.

Additionally, as previously said, it is critical to verify your credit reports from each of the major bureaus to determine your current status and guarantee that your company credit score is free of inaccuracies. Even the tiniest mistake can have a significant influence on your business credit.

A good rule of thumb is to check your company credit report every six months if you aren’t using a business credit reporting service or monitoring tool. If you uncover an error while doing so, double-check that the information is actually faulty, then contact the proper bureau(s) to explain what’s wrong and request that the needed changes be made.

Closing Thoughts on Building Business Credit

As you can see, there are many moving parts in the process of building business credit, but it’s well worth the time and effort in the end. Having standalone credit for your business opens you up to a world of new opportunities for growth and funding. If you commit to building business credit and adhere to the tips above, you’ll be well on your way in no time.

However, if you’d like expert help to guide you through the process, feel free to schedule a call regarding our business credit building program. Our experts will guide you step-by-step through the process and help you build business credit fast. Schedule a call today, and let us show you how quickly you can establish and build credit for your business.