Building a solid business credit history is essential if you plan on staying in business for a long time. Not only is it helpful when applying for a business loan, but it can also make it easier to find and work with suppliers and vendors.
Building business credit can take time, though, so it’s important to start the process as quickly as possible. Here’s what you need to know.
How long does it take to build business credit?
There’s no hard-and-fast rule for how long it will take you to improve your business credit history. A lot of it can depend on whether you’re starting from scratch or you’re trying to get back on track after some missteps.
And if you do have an established business credit history with some negative items on your reports, it can also depend on how much positive history is there too.
Even if you’re starting with a clean slate, it can take a while just to get a score. Dun & Bradstreet, for instance, won’t issue a PAYDEX score for your business until you have at least two tradelines with at least three credit experiences.
Depending on your business’ needs, it can take months if not years to get to that point. As such, it’s important to focus more on what you can do now to improve your business credit history and address potential roadblocks in the way.
How to get your business ready to build a credit history
Building business credit from scratch isn’t quite the same as it is with personal credit. It requires more than just applying for a loan or credit card and making on-time payments. Here are three steps to take to set up your business for a credit history.
Separate your business from your personal life
Your business typically needs to be viewed as a separate entity to start building a credit history. This may require you to incorporate the business or form a limited liability company.
It’s also critical that you open a business checking account and consider getting a business credit card to make sure that your business expenses are completely separate from your personal finances. Make sure the business checking account is in your business name.
Finally, get a dedicated business phone line and list it under your legal business name.
Get an employer identification number
If you’re a sole proprietor, you are, for all intents and purposes, your business. But you can’t build a business credit history with a Social Security number. Instead, you’ll need to get a federal employer identification number (EIN).
Don’t get caught up in the name, though. You don’t have to employ other people to qualify for an EIN. It’s just a way of identifying your business as a separate entity. You can apply for an EIN online for free through the IRS website.
Register with Dun & Bradstreet
Dun & Bradstreet created the Data Universal Numbering System–D-U-N-S number for short–in 1962 to identify business worldwide.
That number is tied to the credit profile Dun & Bradstreet builds on your business. But the company doesn’t necessarily create one for you automatically.
If you’re a Nav customer, use the BusinessLauncher tool to see if your business already has a DUNS number. If it doesn’t, you can apply for one through the same tool. Otherwise, you can visit Dun & Bradstreet’s website to look up or apply for a DUNS number.
You’ll need to provide some basic information about yourself and your business. Once you submit the application, you should receive your number within 30 days.
5 steps to improving your business credit
Once your business is set up to build a credit history, what you do next is critical to ensuring that only positive information gets to the three business credit bureaus, Dun & Bradstreet, Experian, and Equifax.
1. Stay updated with the credit bureaus
Business credit scores aren’t as uniform as the personal FICO credit score; each business credit bureau issues its own proprietary score.
Since there’s no telling which bureau potential lenders, vendors, or suppliers will check, it’s important to make sure your information is current with all three. If you neglect one or two, it could make it difficult to get credit, even if you’re doing everything else right.
2. Borrow only from lenders who report to the credit bureaus
The last thing you want is to feel like you’re building your business credit history, only to find out that your lender hasn’t been reporting any of your payments.
Since not all business lenders report account activity to the credit bureaus, ask about their reporting policy before you apply. That way, you can get the capital you need and spinning your wheels with your credit.
3. Establish tradelines with your suppliers
Big or small, you usually have the option to set up a credit arrangement with your suppliers. Not only can this help you build your credit history but it can also help improve your cash flow planning.
If you choose to do this, however, make sure to ask the supplier to report your payments to the business credit bureaus. Then be sure always to pay as agreed.
4. Always pay on time or even early
The biggest concern of any business lender, supplier, or vendor is whether you’re going to pay them on time. As a result, that factor is heavily weighted in business credit scores.
If you can manage it, you’ll even be rewarded for going the extra mile and paying early. With the PAYDEX score, for instance, you’ll actually receive a higher score if you pay early. On a scale of 100, you only get an 80 if you regularly pay on time.
5. Avoid the big issues
If your business goes bankrupt, a court issues a judgment against you, or a creditor or the IRS places a lien on your business, it could destroy all the good you’ve done to build your business credit.
If you anticipate any of these problems happening in the near or distant future, make it a priority to avoid it at all costs. While you think you’ll be able to weather it, those negative marks can remain on your business credit reports for years to come.
If you have any negative issues already on your credit reports, big or small, work to address those as part of your overall strategy.
The bottom line
Building business credit history doesn’t happen overnight. It takes a lot of time and effort to get where you want to be. As you build your business and want to borrow affordably establish good relationships with suppliers, having a solid business credit history is essential.
So, take the time to look at your business and determine if it’s ready to build a credit history. Then follow the steps outlined above to start the process.
This article was originally written on October 19, 2018 and updated on February 8, 2023.