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8 Tips for Building Business Credit the Right Way

By Sarah Ramirez Reviewed By Mike Lucas
By Sarah Ramirez
By Sarah Ramirez Reviewed By Mike Lucas

As a small business owner, building business credit to qualify for loans or financing is crucial.

If you want your business to qualify for favorable funding, it’s important to understand what business credit is, where your rating stands and how to obtain it. We’ll show you how to build business credit fast and prove the creditworthiness of your company. 

  • What’s Business Credit?

    The best way to understand business credit is to compare it with your personal credit rating. 

    While your personal credit rating determines how trustworthy you are as a person when it comes to financial matters, your business credit score shows lenders how trustworthy your company is.

    Credit-rating firms including Equifax, Experian and Dun & Bradstreet (D&B) assign your business a credit score to tell prospective lenders how likely you are to pay your debts on time.

Credit-rating firms will assign you a business credit score based on a variety of factors.

How to Establish Business Credit

Building business credit is crucial in helping you qualify for financing. To that end, here are 8 tips for building business credit fast:

  1. Incorporate Your Business
  2. Get a DUNS Number
  3. Update Your Information
  4. Be Consistent
  5. Pay Your Bills on Time
  6. Maintain Your Personal Credit Score
  7. Keep Your Business Credit Diverse
  8. Monitor Your Credit

1. Incorporate Your Business

First, you need to ensure that your business is formally incorporated and is a business entity of its own. This will protect you and keep your personal and business credit history separate.

Establishing your business credit depends on the type of corporate structure that you organize your business under. For tax and credit purposes, there are 5 distinct types of corporations:

  1. Limited liability company (LLC)
  2. S corporation
  3. C corporation
  4. Sole proprietorship
  5. Unincorporated business entity

If you want to open a business credit file, consider structuring under any of the first 3 models. Under these arrangements, your personal credit score is kept financially and legally distinct from your business credit.

Take this time to obtain a business tax ID, also known as an employer identification number, if applicable. Additionally, open a business bank account if you haven’t already.

2. Get a DUNS Number

Applying for Data Universal Number System (DUNS) number is essential for establishing business credit. Registering for this 9-digit identification number — developed by D&B — is free, but it may take as long as a month for it to be processed.

Having a DUNS number isn’t mandated by government legislation, but it is required to open a credit file with D&B, one of the top credit-rating firms. You also will need a DUNS number to apply for government grants and contracts or Small Business Administration (SBA) loans. 

  • How to Open a Business Credit File

    You’ll need to open a business credit file with each of the major credit-rating firms: D&B, Equifax and Experian. The file includes data a credit-rating firm collects on your business and credit-management history.

    Your business credit file includes your name, address and credit inquiries as well as the payment history between your small business and vendors, banks, lenders and others.

3. Update Your Information

As a business owner, it is crucial to keep your information current with credit bureaus. This includes details such as years in operation, the number of employees and financial documents. 

Maintaining up-to-date information with all 3 of the major credit-rating firms is imperative for business owners since any lender or supplier could check your credit report from any of the 3. Because each firm carries different information about you, it’s critical to keep all 3 updated.

Keep in mind each credit-rating firm uses different scoring algorithms, meaning your small business could receive different scores. Also note that some vendors might report to some firms and not others. 

4. Be Consistent

Building business credit is about playing the long game. Maintaining the same physical address, company name and telephone number on all public records, registries and correspondence can go a long way in establishing your business entity’s permanence and longevity in the eyes of lenders. 

In turn, your consistency pays off in the form of credibility.

5. Pay Your Bills on Time

To build business credit fast, pay your bills promptly. Just as with personal credit, late payments quickly will hurt your scores. If you can manage it, paying your vendors early can help build your business credit.

(Remember: Work with vendors that report payments. Otherwise, your credit-building efforts may go unnoticed.)

6. Maintain Your Personal Credit Score

Although your business’s credit is a legally separate entity, it is crucial that you maintain a good personal credit rating too.

Lenders will check the credit scores of all your shareholders when it comes time to secure financing. Shareholders with more than 20% share percentage can expect lenders to check their personal credit rating.

7. Keep Your Business Credit Diverse

As you’re building business credit, broaden your profile to include accounts from multiple creditors. This could include:

Applying for a secured business credit card arguably can be the fastest way to build business credit. Secured credit cards are backed by a deposit—for instance, a deposit of $1,000 qualifies you for a credit limit of an equal amount.

It’s more difficult to qualify for an unsecured business credit card, as they don’t require a deposit or collateral.

When you diversify your credit, your company’s creditworthiness gets a major lift in the eyes of creditors. 

8. Monitor Your Credit

You can keep an eye on your business credit by taking advantage of software, some of which is free, that automatically notifies you whenever your credit rating changes. Use these tools to address any sudden changes to your business credit.

Another big benefit of keeping close tabs on your business credit score: Detecting possible instances of identity theft.

Building business credit will help you qualify for loans or financing.

Why You Need Good Business Credit

Knowing how to get business credit will help you qualify for favorable financing options in the future. By establishing a good payment history and maintaining a diverse credit file, you’ll build trustworthiness with banks and lenders.

Having good business credit can be the difference between securing sustainable financing or signing on a bad loan. When business funding gets tight, you’ll feel reassured that you can access reliable, lower interest sources of credit because you built your business credit the right way.

Sarah Ramirez Contributing Writer at Fast Capital 360
Sarah Ramirez is a contributing writer at Fast Capital 360, focusing on a variety of small business topics. Sarah has more than 2 years of experience writing about business and marketing. She also has worked as a marketer for small businesses and nonprofits.
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