A strong business credit score can help you secure better terms on business loans, get lower rates on business insurance and negotiate more favorable terms with suppliers.
But companies don’t just start with a good credit score; you need to build business credit from the ground up — or rebuild it if your business previously struggled with cash flow and delinquent payments.
Here’s a step-by-step guide to building your business credit.
1. Register your business and get an EIN
For new business owners, the first step to establishing business credit is to register your business. This process will vary depending on your business structure and where you live. Some states do not require sole proprietors to register if you operate under your own name, for example, but you may still need a local business license.
You can also apply for an employer identification number, or EIN, with the IRS. This business tax ID isn’t a prerequisite to building business credit, but it is required by the IRS for most businesses.
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2. Apply for a DUNS number
To get a business credit score from Dun & Bradstreet, one of the three major business credit bureaus, you first need a DUNS number. You can request a DUNS number for free on Dun & Bradstreet’s website.
Lenders and other businesses will often use this unique nine-digit number to look up your company’s credit profile and financial health before agreeing to do business with you. A DUNS number is also required to apply for any federal grant.
You do not need to request a special identifier from other business credit bureaus, like Experian and Equifax.
3. Open a business credit card
A business credit card can be one of the best tools for building business credit, provided you pay it off in full each month or keep the balance low (less than 30% of your available credit) and make regular, on-time payments.
Business card issuers use your personal credit to determine approval, so you can get one without an established business credit profile. After that, most small-business cards report activity to business credit bureaus so on-time payments and low credit utilization will help build your business credit score.
Keep in mind: Missed payments and delinquencies often negatively impact your business and personal credit scores.
Business owners with poor personal credit can look into a secured business credit card, which requires a security deposit and can typically be upgraded to an unsecured card with good payment history.
4. Establish trade lines with your suppliers
Suppliers often extend trade credit, which allows you to pay several days or weeks after you receive the inventory. This type of accounts-payable relationship can boost your business credit score, provided your supplier reports payments to a business credit bureau.
You can set up trade lines with any small vendor, such as your water or office supplies distributor. If those vendors don’t report to a credit bureau, you can list them as a trade reference on your account, and Dun & Bradstreet will follow up to collect your trade data.
5. Pay creditors early
Payment history is the most important factor in determining your business credit score. While on-time payments are good, early payment is even better. Why? Dun & Bradstreet only assigns perfect Paydex scores, which measures a business’s payment history, to companies that pay early.
Other factors that play into your business credit score include the length of your credit history and credit utilization. Aim to maintain relationships with creditors and to use less than 30% of available credit, including business credit cards and lines of credit.
6. Borrow from lenders that report to credit bureaus
Small-business loans can boost your business credit if you make all your payments on time, but not all lenders report to business credit bureaus. Ask the lender whether they report before you take out a small-business loan.
Banks typically report to credit bureaus, but they have strict lending criteria and can be hard to qualify for unless you have excellent credit and several years in business..
Online business loans tend to be more accessible for new businesses and those with poor credit, and many online small-business lenders, including OnDeck, LendingClub, Funding Circle and Bluevine, report to business credit bureaus. But other lenders like SmartBiz, Fundbox and merchant cash advance companies don’t report.
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7. Avoid judgments and liens
Judgments, liens and bankruptcy filings in your business’s name all negatively impact your business credit score. Unpaid taxes or business debt can result in a lien, granting creditors a legal right to seize your property to satisfy the debt. And unpaid debt may eventually result in a court ruling — or judgment — against your business to collect the debt.
These negative marks on your business credit report can haunt you. Bankruptcies, for example, stay on your Experian credit score for 10 years; tax liens, judgments and collections remain for almost seven years.
8. Keep your information current with all three credit bureaus
As with personal credit, it’s smart to keep tabs on your business credit report to ensure all of your information is accurate. There are three main business credit bureaus: Dun & Bradstreet, Experian and Equifax. Check your business credit score with all three; ensure all trade lines are accounted for and report any errors, whether to your address or negative marks on your report, to the respective business credit bureau.