“I don’t want to take on debt for my business.” 

That’s a frequent comment I’ve heard from small business owners who are trying to understand how to establish business credit. They are under the impression that the only way to build credit is to borrow money with small business loans or other types of financing.

Here’s the answer I gave that business owner: “You don’t have to use debt to build good business credit scores.”

You can build business credit through everyday expenses, if you know now. Find out how here. 

Can Business Expenses Be Used To Improve My Company’s Credit History?

Whether you have a brand net business or an established one, business expenses can turn into credit-building opportunities in three ways:

1. Business credit and charge cards

You can use business credit or business charge cards to purchase items your business needs. As long as the card you use reports to major business credit reporting bureaus—and you pay on time—you will be contributing a positive reference to your business credit history.

2. Net-30 vendors

Another way to help establish your business credit file is to purchase items your business needs like office supplies or essential business supplies using vendor accounts. Many business suppliers offer payment terms (such as net-30 or net-60, which means payments are due in 30 or 60 days). As long as that vendor reports to business credit agencies, and you pay on time, you can add a tradeline reference to your business credit report. 

Find easy net-30 vendors that report to business credit here. 

3. Direct expense reporting

You may be able to get accounts you already pay for your business such as business utilities or rent to certain business credit bureaus through a service like eCredable Business Lift. 

What Are the Best Business Expenses To Put on a Credit Card To Help Build My Business Credit History?

Virtually any business expense can be put on your business credit card or charge card as long as the company you’re paying accepts credit cards. 

If you’re carrying a balance, you are likely paying interest. In that case, any new purchases will likely also begin to incur interest immediately. Be careful about new purchases in this case, because you’ll pay more with interest charges added on.

If you pay in full and avoid interest charges, this can be an effective and low-cost way to build credit. 

Why Is Business Credit Important?

Access to better loan rates and terms

Creditworthiness matters to most companies that offer small business financing. Lenders may evaluate your business credit, personal credit, or both, when considering your application for loans or financing. SBA loans (guaranteed by the US Small Business Administration), for example, require “acceptable credit,” and some loans require the lender to check the business’s credit using a FICO SBSS score. 

While having good business credit doesn’t guarantee you’ll get approved for a loan, it may offer more options, lower interest rates, and/or higher credit limits.

Better terms with suppliers and vendors

Establishing good credit can help you secure better payment terms with vendors, such as net-30, net-60, or even longer terms. And that can help you improve your business cash flow. 

Lower insurance costs

Business credit may be checked when you apply for business insurance. Good credit may help your business apply for credit at lower terms.

Opportunities for growth

Potential business partners, investors, buyers and other businesses you may want to do business with may check your business credit.  A solid business credit profile can make your business more attractive to those looking to invest or partner with you. 

Read Nav’s guide: What Is a Good Business Credit Score?

How Do I Build My Credit History if I Have None?

If you aren’t sure how to establish business credit, here’s how to get started. You’ll find more details in Nav’s guide: 15 Steps to Make Your Business Legit.

1. Build Your Foundation

To successfully establish business credit, it’s helpful to lay a solid foundation for your business. If your business is newly formed, dedicate time to creating a professional appearance for both clients and lenders.

Paying attention to details like a business phone number listed in directory assistance, a professional email address (not @hotmail or @yahoo), and a website can be helpful. Get an Employer Identification Number (EIN) for free from the IRS if you don’t already have one as the result of forming a legal entity. 

Why? Basic information about your business may appear on your business credit reports, and future lenders will want to ascertain that your business is a real business. 

2. Make it official 

Officially registering your business with your state is important. If you’ve formed a limited liability company (LLC) or corporation, this step is already covered. Be aware that annual filings are typically required. If your business is formed in a different state, you might also need to register it as a foreign corporation in the state where you operate.

For sole proprietorships or independent contractors who haven’t created a formal business structure, you can file a fictitious business name with your state, also known as a “DBA.”

In either case, ensure you obtain any necessary professional or business licenses as required by your state.

Why? Public records like these can be used by commercial credit agencies to start your business credit profile.

3. Get a D-U-N-S Number

A DUNS number is your business identifier with Dun & Bradstreet (D&B). If your business doesn’t already have one (you can check for free), request one. While Creditsafe, Equifax, and Experian create and use their own identifiers, you won’t request those. 

Why? It makes your business visible to Dun & Bradstreet.

4. Get Tradelines That Report to Business Credit Agencies

A critical part of any credit report is your payment history. Past payment behavior is used by credit scoring models to predict future payment behavior. It’s important to have accounts that report to business credit bureaus, as not all do. Aim to establish at least two to three credit accounts with companies that report, more as your business grows.

These can include: 

Net-30 accounts from suppliers and vendors

Many suppliers offer payment terms such as net-30 accounts. These trade credit payments can help build your credit history, provided the supplier reports payment history to business credit reporting agencies—and you pay on time. Since most vendors don’t check personal credit, this can be an easy way to start building your business credit rating.

Here is a list of easy net-30 vendor accounts. 

Business credit cards

Most business credit card issuers report to one or more major business credit bureaus. On-time payments and low balances help build credit. (For some credit scoring models it’s best to keep credit utilization low; 30% or less is a good reference point.) 

Business loans and financing

Small business loans and other financing options, such as term loans and business lines of credit, often report to credit agencies. Larger loans with timely payments can significantly boost your credit history.

Why? Without accounts with a solid payment history, you’ll have a thin file or no business credit report and/or a low credit score.

5. Open a business credit card

We just mentioned this briefly under tradelines, but it’s worth mentioning again. A business credit card that reports to major credit reporting agencies can be an excellent way to build credit. These cards can help establish credit when paid on time.

Most small business credit card issuers consider the owner’s personal credit scores and income when evaluating applications. This makes them accessible to both startups and established businesses.

Having at least one business credit card is beneficial, and having more can increase your credit limit and cash flow. However, avoid overextending your business and running up debt you can’t pay. That will only damage your business credit scores.

If you don’t qualify for a business credit card, or you want to avoid debt, another excellent option is a business charge card that requires payment in full. 

Why? Business credit cards and business charge cards can help establish credit when paid on time and debt remains low. 

6. Pay on time

This has also been mentioned before, but it’s so critical to the credit-building process that it’s worth mentioning again:

Pay on time or early to build strong business credit. 

Payment history is the most crucial factor in any credit score, and especially for business credit. Business credit reports often use “Days Beyond Terms” (DBT) to describe late payments. Even being a day or two late can affect your score.

A positive payment history is crucial to help build your business credit scores fast.

Why? Once you have tradelines that report, paying on time is the best way to build business credit.

7. Monitor your credit

Regularly monitoring your business credit history helps track your progress and spot errors. If you find a mistake, dispute it with the reporting credit bureau.

It’s smart to check your business credit reports and scores with multiple major credit reporting agencies since they don’t share information with each other. 

Why? Monitoring your business credit helps identify and resolve issues early.

Read: How to Check Business Credit Scores and Reports

Is It Illegal To Put Personal Expenses on Business Credit Cards?

It is not a good idea to put personal expenses on a business credit card. Your cardholder agreement—a legal document—may state you will use the card for business expenses. 

And while issuers aren’t likely to monitor or question your spending, mixing business and personal expenses on the same card can create a variety of problems for you:

1. It may create headaches at tax time and/or you may miss out on tax deductions.
2. You may jeopardize the asset protection benefits of a business entity such as an LLC or corporation 
3. If you can’t pay the debt back, you may not be able to get rid of it through bankruptcy if it’s determined you violated your user agreement. 

It’s best for entrepreneurs to keep a clear line between your personal finances and business finances. Use a business credit card or business charge card for business purposes, and a personal credit card for personal purchases. If you are having trouble qualifying, consider a business charge card with flexible qualification requirements. 

Is It Illegal To Pay Personal Expenses From a Business Account LLC?

If you have taken the time and expense to form an LLC or corporation, you’ll want to protect it. Paying personal expenses from your LLC bank account may jeopardize the asset protection benefit of that business entity. 

And there’s another potential problem with paying personal expenses from a business checking account: it can make it more difficult to get a small business loan or financing. 

Why? Many lenders and companies that offer financing will want to verify your business revenues through business bank statements. If there are a lot of personal expenses being paid through that account it may make it look like your business expenses are higher than they actually are. 

It’s best practice to pay yourself from your business bank account (salary and/or distributions, depending on how your business is structured), and then pay your personal expenses from your personal bank account. 

Which Small Business Credit Cards Report To Personal Credit?

Most small business credit cards don’t report to business credit. However, most require a personal guarantee (PG); if you don’t pay you agree to be personally liable. As a result, the issuer may reserve the right to report the account to your personal credit history. 

This guide explains which major small business credit cards report to personal credit.