Charge cards can be an excellent way to build business credit, and offer a number of other key benefits for your small business. Here’s how to leverage business charge cards to build strong business credit scores.
Why Business Credit Is Important, Even if You Think You Don’t Need It
Just like a good personal credit history makes it easier to get credit cards, a mortgage or even something as simple as a new cell phone, business credit opens up opportunities for your small business.
Business credit reports can be used by lenders, suppliers, insurance companies and even potential business partners to decide whether to do business with your company, and to set the terms of those relationships.
Build strong business credit and you can open up new financing or business opportunities, and increase your confidence so you can take the next steps in your business journey.
Access better funding options with a solution you can’t get anywhere else
Improve your business credit history through tradeline reporting, know your borrowing power from your credit details, and access the best funding – only at Nav.
Business Charge Cards as a Way To Build Credit
To build good business credit, you need accounts that appear on your credit reports. Credit references like these are often called “tradelines.”
When it comes to business credit, not all lenders or vendors report to business credit bureaus. To build credit, you may need to seek out financing from companies that will report your payment history.
A business charge card that reports to business credit bureaus can be an excellent tool for building business credit. We’ll explain how to get one in a moment.
How Business Credit Works
Business credit bureaus such as Dun & Bradstreet, Equifax, and Experian collect information about how businesses pay their bills. They then sell those business credit reports to lenders, insurers, and other companies.
Business credit is different than personal credit in a few key ways:
- Anyone can check your business credit, and there’s no requirement they tell you before or after that they’ve done so.
- Business credit bureaus are not required to provide businesses with free copies of their credit reports, as is the case with consumer credit reports.
- Some small business loans and financing arrangements are not reported to credit bureaus. With personal credit, lenders usually report mortgages, car loans, personal loans and credit cards to the major credit bureaus. But with business financing, those relationships may or may not be reported to major business credit bureaus.
- Certain account details, such as the names of companies reporting accounts and credit limits, are typically not reported.
Despite these differences, there is an important similarity between business and personal credit: paying your bills on time is fundamental to building and keeping good credit.
How Tradelines Affect Business Credit
“Tradelines” is simply a term used to describe the accounts that appear on business credit reports. They can include net-30 supplier credit accounts, lines of credit, loans, equipment leases and other accounts that report.
Tradelines are key to establishing business credit.
Payment history is the main factor used to calculate business credit scores. Businesses that have paid their accounts on time in the past have demonstrated creditworthiness, and they are more likely to pay on time in the future.
Without current tradelines, a business may have a low business credit score even though their credit report doesn’t list any negative information.
Here’s a specific example of how important tradelines can be. Nav Prime customers who used Nav’s Detailed Credit Reports with tradeline reporting saw an increase in their business credit scores up to 50% in the first 3 months.**
In short, tradelines (accounts) that are reported to multiple business credit bureaus offer an excellent opportunity to build good credit for your business.
How Automatic Payments Benefit You
Cash flow is a constant challenge for many small businesses. Increases in the cost of supplies or labor, customers who pay slowly, and seasonal business fluctuations, for example, can all make it challenging to keep your finances on track.
Automatic payments ensure you won’t forget to make a payment. That means you’re not likely to miss a payment. And since payment history is such a key factor in business credit scores, those automatic payments can help your business keep a strong credit rating.
By paying your balances off quickly and avoiding debt, you may also avoid high credit utilization, which can affect credit scores.
How a Good Business Checking Account Can Help
Business checking accounts don’t appear on business credit reports, but they are used by many small business lenders to qualify business owners for financing. Most small business lenders will require copies of business bank statements to verify income or to evaluate cash flow. Online lenders may ask you to connect your bank account for the same purpose.
Having a business bank account has other benefits as well. It allows you to separate your business and personal finances, and makes your small business accounting tasks a lot easier. If your bank offers cash flow management tools, you can easily stay on top of your businesses’ financial health.
How Business Charge Cards Help Build Good Business Financial Skills
Small business credit cards and charge cards can be a great way to build business credit, as long as the card issuer reports payment history to business credit bureaus.
The difference between a charge card and a credit card is that charge cards require payment in full. Making minimum payments—and stretching out payments for months or years— simply isn’t an option.
This can be appealing to small business owners who want the convenience of an American Express, Mastercard, or Visa card for paying business expenses, without the temptation of running up debt at higher interest rates.
With a charge card, cardholders get the forced discipline of paying off balances quickly while still benefiting from protection against fraudulent charges.
And here’s more good news: whether you have an established business or your business is a startup, you may be able to qualify for a business charge card. Many card issuers will consider new businesses that meet overall qualifications.
Some credit card issuers will require good credit or excellent credit to qualify. But with the Nav Prime Card,* a charge card, there is no personal credit check.
Note: The Nav Prime card is currently not available in CA, NV, ND, SD.
Tip: If your business doesn’t have an Employer Identification Number (EIN), consider getting one. You can get an EIN from the IRS for free, and it can be helpful for further separating your business and personal finances. Most card applications will ask for a Social Security number, and will also allow you to provide your EIN if your business has one.
Whether you choose a business credit card or a business charge card, it’s best practice to avoid using a personal credit card or debit card for your business expenses. Again, try to keep your business and personal finances separate.
Your Next Steps
Here are several steps you can take now to help build a financially healthy business.
1. Apply for a Business Charge Card
Get a Nav Prime Card—exclusive to Nav Prime members— and your transactions will be reported as a monthly tradeline, turning your everyday transactions into opportunities that can build business credit with regular use.
Unlike a secured credit card, there’s no security deposit required, and your personal credit score will not be checked.
With Nav Prime, you’ll get detailed insights on your business through Detailed Credit Reports with tradeline reporting that can grow your business credit and help improve your financial health profile. With Nav Prime and the Nav Prime Card, you can double your tradelines.
Looking for a business credit card instead? Nav can help you find the best business credit cards based on your business data. Find cards with rewards programs like travel or cash back rewards, as well as additional perks.
2. Get a Good Business Checking Account
Nav polled almost 650 business owners across the U.S for its Business Banking Survey and found that 70% of small business owners without a business checking account were turned down for a business loan in the past two years.
A business checking account is a great way to manage your money as well as to increase your funding eligibility.
Check off a common lender requirement, and make informed decisions with Nav Business Checking,* the only business checking account that connects your banking data to the best financial options for your business.
3. Manage Your Business Finances Well
Manage your money in your business well, and everything runs smoother. Here are just a few advantages of developing your money management skills:
- Make sure your business has the money it needs to pay contractors, make payroll on time—and to pay yourself.
- Set aside funds for business taxes or other essential expenses so you don’t wind up with expensive penalties.
- Understand what activities are most profitable so you can improve revenue and add new income streams.
- Identify problems quickly—including unexpected increases in expenses or slow paying customers—so you can take action.
- Be prepared with the financial information and credentials you need to get the best small business loans to grow your business.
Business tools like a business checking account, business charge card and/or credit card, and up-to-date accounting software can help make it easy to stay on top of your business finances.
4. Monitor Your Business Credit Scores
Whether you’re trying to build or maintain good credit, or build back after bad credit, make a habit of monitoring your business credit scores. You can track your progress and be ready to take advantage of opportunities when your business needs financing for growth.
In addition, business identity theft is a growing problem; monitoring your credit is the most effective way to identify suspicious activity.
With Nav Prime, not only will you get access to Detailed Credit Reports, including both business and personal credit reports from multiple bureaus, you’ll also get tradeline reporting.
The majority of customers that use Nav tradeline reporting at least a year continue to see positive business credit score changes***
Accelerate your path to better funding
Build business credit history, see your business credit-building impact, and secure new funding options — only with Nav Prime.
*DISCLAIMER: Nav Technologies, Inc. is a financial technology company and not a bank. Banking services provided by Blue Ridge Bank, N.A., and Thread Bank, Members FDIC. The Nav Visa® Business Debit Card is issued by Blue Ridge Bank, N.A., and the Nav Prime Charge Card is issued by Thread Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa cards are accepted. Your funds are FDIC-insured up to $250,000 through Blue Ridge Bank, N.A., Member FDIC.
**Based on aggregate data tracking Experian® Intelliscore Plus business credit scores after three months of having Nav tradeline reporting. Results will vary. Scores are calculated from many variables; some users may not see improved scores.
***Based upon the aggregate percentage of Nav customers with positive score changes, nearly 75% of customers continue to see positive business credit score changes across business credit bureaus by keeping their Nav tradeline at least a year.
This article was originally written on December 20, 2023.
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