How to build business credit for an LLC

If you’re going to take the step to form an LLC, why not take the next step and build business credit for the LLC too? 

Your LLC's credit history can influence everything from loan approvals to insurance premiums. Suppliers often check business credit before extending payment terms like net-30 or net-60 payment terms. Other businesses can evaluate credit history when considering partnerships. Insurance providers may use credit data to help set insurance rates.

Here's your step-by-step roadmap to building strong business credit for your LLC.

Step 1: Form your LLC correctly and file state documents

Start by legally forming your limited liability company. When you do, you’ll file articles of organization with your state, get an employer identification number (EIN), and obtain the proper business licenses. This step ensures that your business is recognized as a separate legal entity. An attorney or business formation service can help simplify the process.

State filing checklist:

• Articles of organization filed with your state
• Operating agreement (even for single-member LLCs)
• Business licenses and permits
• Annual reports filed on time
• Pay filing fees, annual fees or franchise tax payments

Missing these filings can damage your credibility with credit bureaus and lenders. Late state filings may appear in public records that credit agencies monitor.

Initial filing fees range from $35 (Montana) to $500 (Massachusetts) but are often in the range of $50 to $150, depending on the state. Some states require annual or biannual filing fees, and California has a franchise tax fee of $800 for all LLCs. (That fee is separate from income tax or other business taxes.) 

Step 2: Obtain an EIN and D-U-N-S Number

When you formed your LLC, you should have requested and received an Employer Identification Number (EIN) from the IRS. You can get an EIN for free from the IRS. While an EIN isn't required to build business credit, you should use one when you apply for small business loans or financing. This may help business credit bureaus match accounts you establish to your business credit profile.

Next, get a D-U-N-S^® Number. (D-U-N-S stands for data universal numbering system and it’s a unique nine-digit identifier helps track and establish your business credit in Dun & Bradstreet’s system.) 

If you open vendor credit or business tradelines that report to Dun & Bradstreet, your business may automatically be assigned one. But you can also request one for free from Dun & Bradstreet. 

Timing expectations:

• EIN: Immediate approval online
• D-U-N-S^® Number: Up to 30 days for processing

Before you apply for business credit, choose your business address and, if possible, get a business phone number in your business name. A separate phone number can help establish the legitimacy of your business.

Read: What address should I use for my business? 

Step 3: Open a dedicated business bank account and credit card

Opening a separate business bank account for your LLC is not optional. It’s essential to separate your personal and business expenses. 

In a 2018 survey, Nav found that 70% of small business owners without a business checking account were denied a business loan in the two years prior.

Also consider getting a business credit card or charge card in the name of your LLC. Choose one that reports your payment history to business credit bureaus, then make payments on time and keep balances low to help build a positive credit history.

Credit utilization management

It may be helpful to keep your credit utilization below 30%. This ratio compares the balance reported to the credit bureau to your credit limit. 

For example: $3,000 balance ÷ $10,000 limit = 30% utilization. Lower ratios indicate less risk, and may help improve your credit scores.

Step 4: Establish net-30 tradelines that report

Of the credit-building options available, one of the easiest ways to get started is with net-30 accounts with vendors or suppliers that report payments to business credit bureaus. 

These are accounts with other businesses that will let you purchase items you need in your business and pay for them in 30 days. 

Many vendors don't require a good personal credit rating (some vendors may not even check your personal credit, but policies vary), and typically don't require a personal guarantee either. If your payments are reported to business credit bureaus and you pay on time, you can start building good business credit. 

Accounts available to newer businesses with limited business credit histories are often referred to as “tier 1” tradelines. 

Setting up effective net-30 accounts

• Start with two to three net-30 tier 1 accounts that report to business credit bureaus
• Credit limits may be small to start, but may increase over time
• Verify vendors report to at least one major business credit bureau before applying
• Pay invoices on or before the due date

Examples of types of providers you can use to build business credit include vendor accounts, business tradelines, and credit builder accounts. Not every creditor offering these types of accounts will report. Always confirm whether on-time payments will be reported to business credit bureaus.

Nav Prime gives you up to two tradelines reported to major business credit bureaus so you can start building your business credit history right away.

Step 5: Pay early to help maximize your PAYDEX Score

On time payments are the single most important factor used to calculate credit scores. 

With business credit, payments can be reported if they are just one day late. Rather than grouping late payments into 30-day buckets as with personal credit, most use "days beyond terms." If you are just a couple of days late your payment history can be reported as 2DBT.

One of Dun & Bradstreet’s flagship credit scores is called the D&B PAYDEX^® score. It ranges from 0–100, with 100 being the best score a business can achieve. To earn the highest score, your business needs to pay accounts that report to D&B early. 

PAYDEX^® score optimization

Early payments can signal strong cash flow and financial stability to credit bureaus.

Learn more: The D&B PAYDEX Score explained

Step 6: Monitor your LLC's credit scores across all bureaus

The major business credit bureaus produce a variety of business credit scores. Dun & Bradstreet is well known for the D&B PAYDEX^® score, but it’s only one of several scores it sells. Experian sells the Intelliscore, and Equifax sells a variety of business credit scores. There's also a FICO^® credit score for small businesses called FICO^® SBSS℠.

Examples of business credit score ranges

Following are some common business credit scores and their score ranges. For a comprehensive list, see the Nav article, What is the highest possible business credit score?

Source: Nav.com

Lenders have a choice of scores to purchase and they choose which credit bureau to purchase it from. Check and monitor your credit with multiple credit bureaus so you understand what lenders can see. 

Regularly track and act on detailed personal and business credit reports and scores from major credit bureaus with Nav Prime.

Step 7: Open higher-tier credit lines and loans

Start building your business credit by establishing relationships with vendors who offer credit and report your payments to the business credit bureaus. Make on-time payments to these vendors to help establish a positive credit history.

After you have established vendor accounts, consider getting a small business credit card. Most small business credit card issuers report to at least one of the major business credit reporting agencies.

Credit-building progression

1. Net-30 vendor accounts
2. Business credit cards or charge cards
3. Business lines of credit
4. Term loans and equipment financing

Each step demonstrates increased creditworthiness and opens access to larger credit limits and better terms.

When it comes to getting larger small business loans, lines of credit or leases – as well as many SBA loans – lenders may use a FICO SBSS score. This score can evaluate personal and business credit data, as well as application and financial data. While you may achieve a strong SBSS score with really good personal credit scores (and financials) alone, it’s easier if your business also has strong business credit. 

What is the fastest way to build business credit for an LLC?

You can begin to build business credit as soon as you form your business entity, even if you have a brand new business. You do that by doing business with companies that will report to business credit reporting agencies.

There are three major business credit bureaus:

• Equifax
• Experian
• Dun & Bradstreet

These bureaus collect information about how business entities pay their bills. You'll need to establish accounts with companies that report payment history to at least one of these bureaus then pay those bills on time.

Examples of types of providers you can use to build business credit include:

• Vendor accounts
• Business credit cards
• Business tradelines
• Credit builder accounts
• Business lines of credit

Not every creditor offering these types of accounts will report. Some do, and some don't. So always be sure to find out whether on-time payments will be reported. Nav Prime gives you up to two actively reporting tradelines reported to all major business credit bureaus so you can start building your business credit history right away.

Common LLC credit-building mistakes to avoid

When building credit for your LLC, avoid common mistakes that could hinder your progress or negatively impact your creditworthiness:

1. Late payments 

If you're like most business owners, you’re busy, and cash flow can be uneven. It’s easy to lose track of details in your business, or to juggle bills when money isn’t coming in quickly. 

But overlooking due dates and paying late or missing payments altogether is one of the most damaging mistakes you can make when it comes to your credit scores. Late payments can significantly lower your business and personal credit scores.

2. Applying for too much credit 

Applying for multiple credit accounts within a short period can raise red flags with creditors and credit bureaus. Each time you apply for credit, it triggers a hard inquiry on your credit report, which can temporarily lower your credit score.

3. Commingling funds 

Mixing business and personal finances can undermine your LLC's separate legal status. Use personal accounts for personal expenses and business accounts exclusively for business transactions. Paying yourself a regular salary–even if it’s small–can help. 

Learn how to pay yourself as an LLC.

4. Personal guarantees on vendor accounts 

Your goal is to avoid personal guarantees (PGs) where you agree to be personally liable for business debts. When your business is new, you may not have a choice: lenders may rely on your personal credit and personal guarantee to make credit decisions. The same is true if you apply for an SBA loan: the SBA requires personal guarantees for most loans. 

But as you build business credit and a financially healthy company, you’ll have more choices of funding options. Over time, you can look for financing without PGs. 

5. Late state filings 

Missing annual reports or franchise tax deadlines can create negative public records that credit bureaus may monitor. And fees can be steep.

6. Not establishing vendor relationships 

Building credit solely through financial accounts like credit cards or loans can limit the variety of credit types on your business's credit profile. Some scoring models rely heavily on non-financial accounts. Using net-30 vendors that report can help with this.

7. Neglecting personal credit 

For most business owners, your personal credit matters, especially in the early stages of your business. If your personal credit scores aren’t strong, work on them while you are building business credit. 

The combination of strong business credit and strong personal credit is like having a business with a popular online store and foot traffic: they feed each other. 

8. Failing to monitor credit reports

Mistakes happen. Businesses get mixed up with other businesses in the credit databases. Public record information can be inaccurate or out of date. 

And business identity theft is a growing problem. 

Ultimately it’s up to you to review your reports to identify errors, discrepancies, or even possible fraudulent activities on your credit report. Inaccurate information can damage your credit.

9. Closing old credit accounts 

The number of months or years you have had credit accounts can impact your credit scores. Keep accounts active and use them from time to time to ensure at least a few active, open accounts on your reports. 

What does a healthy business credit profile look like?

Your business credit file can help lenders and other companies evaluate how your business has handled financial obligations in the past. A healthy business credit history will include:

• A business address that doesn’t raise red flags (virtual addresses may be an issue with some lenders)
• Accounts reporting regular on-time accounts. A mix of financial accounts and non-financial tradelines can be helpful. 
• Reasonable balances on debt
• No serious negative items such as collection accounts, bankruptcies or judgments. If they appear on the report, they should have been resolved, ideally some time ago.

Also, most lenders prefer to see no more than a couple of open UCC liens on the credit report.

Why LLC credit differs from "general" business credit

LLC credit operates differently from other business structures due to the unique legal framework of limited liability companies.

Single-member vs. multi-member LLCs

• Single-member LLCs may face higher scrutiny from lenders who may treat them more like sole proprietorships
• Multi-member LLCs typically receive treatment similar to partnerships or corporations

Still, an LLC is superior to a sole proprietorship when it comes to building business credit. With a sole prop, there is no legal distinction between the business and the owner. You can build business credit with a sole proprietorship, but you’ll never get truly away from personal guarantees.

Veil-piercing risks 

Fail to maintain proper LLC protocols and a creditor may be able to "pierce the corporate veil," which means they may come after your personal assets in the event of a lawsuit against the business. This makes proper financial separation critical for LLCs. 

Treating your LLC like its own entity with bank accounts and proper documentation helps preserve your LLC's credit independence and legal protections.