Building credit for your company is a wise use of your time as a business owner. There’s a lot of value in establishing good credit for your business.
Having solid business credit can help you to qualify for a business loan or credit card. It can make it easier to take out leases and commercial rentals. Good business credit might even help you save money on your monthly insurance premiums and contracts with suppliers. Perhaps most importantly, building credit in your business’ name can help you to separate your personal credit from your business credit, reducing your individual risk when you borrow.
The bottom line is this: when you put forth the effort to build credit for your company, it has the potential to open doors and save you money.
Building Business Credit from Scratch
Of course, knowing that you should establish good credit for your business and understanding how to do it are two very different animals. Unfortunately, it can sometimes be challenging to find lenders who are willing to take a chance on doing business with your company when you’re still a credit unknown.
But challenging doesn’t equal impossible.
If you can be patient and consistent, it’s completely possible to establish or improve your business’ credit profile. Check out the five steps below and learn real, actionable ways you can build your business’ credit from scratch.
Step One: Make sure your business is properly established.
Before you can establish business credit, you need to make sure your company itself is properly established first. Translation: Your business needs to appear legitimate in the eyes of a lender.
To establish credibility for your company, you’ll need to:
- Create a separate legal entity for your company (S Corp, C Corp, LLC, etc.).
- Get a federal employer identification number (EIN) from the IRS.
- Open a business checking account in your company’s full legal name.
- Get a dedicated business phone number and address.
- Register for your DUNS Number with Dun & Bradstreet.
Step Two: Consider starting with a business credit card.
There are several reasons you may want to open a credit card in your business’ name. First and foremost, if you open a business credit card and manage it well, it has the potential to help you build credit for your company.
Keep in mind, your personal credit is likely going to be a key factor in your ability to qualify for a business credit card account. If your personal credit isn’t in great shape, that doesn’t mean you can’t open a credit card for your company. It just means that you may need to adjust where you apply for the account. For example, a secured business credit card or an account which doesn’t require good credit to qualify might be a better fit for you.
Additionally, it’s important not to overutilize your new account. With certain business credit scoring models, such as Experian’s Intelliscore Plus, utilizing a high percentage of your credit limit could impact your credit scores negatively. This can be true even if you keep all of your payments on time.
Step Three: Establish vendor accounts.
Vendor accounts (also known as supplier accounts) can be another smart place to begin when you’re trying to build business credit for the first time. The Small Business Administration recommends this approach and suggests starting out with companies who will offer net 30 to net 60 day payment terms for products like office supplies, computers, etc.
Here’s the catch. You should establish accounts with companies who will report your payments to the business credit reporting agencies — Dun & Bradstreet, Experian, and Equifax. Otherwise, the payments you’re making to that vendor won’t help you establish credit in your company’s name. Business owners on Nav’s Business Boost and Business Loan Builder plans have their monthly payments reported to all three major business bureaus, establishing a new tradeline for their business and building strong business credit in the process. Sign up for Business Boost or Business Loan Builder today.
How do you find vendors who can help you to build business credit? Here’s a helpful list from Nav to make your search a little easier.
Be sure to establish enough accounts so that you’ll be eligible to receive a business credit score. With Dun & Bradstreet’s PAYDEX score, for example, you need a bare minimum of two tradelines with at least three credit experiences on your business credit report before a credit score will be created for your company.
Step Four: Pay on time or early.
Opening business credit cards or vendor accounts isn’t going to do you any good if you don’t keep your payments on time. Your business credit scores are not only impacted by whether you have accounts established in your company’s name. How you manage the accounts once they are open will determine whether you build good credit scores for your company or whether the scores you establish will be bad.
Paying your bills on time may be even more important with your business credit scores than your personal credit scores. Why? Some business credit scores are based 100% off whether you pay your credit obligations in a timely fashion. In fact, paying your bills early might even help you to boost your business credit scores higher.
Step Five: Monitor your progress.
When it comes to your credit reports — both business and personal — keeping an eye on your information is your responsibility. You can, and should, review your credit reports frequently to make sure that your reports remain accurate and free from mistakes or fraud.
Remember, your credit scores are based on the information found in your credit reports. If negative information shows up on those reports, your scores could be damaged even if the information is incorrect.
On the personal side of your credit, you can visit AnnualCreditReport.com to claim a free copy of your three credit reports once every 12 months (thanks to federal law). Unfortunately, there’s no federal mandate for the business credit reporting agencies to provide you with free credit reports for your company.
You can, however, monitor your business and personal credit in one spot with Nav, free of charge. If you prefer, you can also contact each of the business credit reporting agencies individually to get a full copy of your business credit reports for a fee.
This article was originally written on February 20, 2019 and updated on October 21, 2020.