This article was reviewed and updated on July 12, 2021.
If you’re trying to establish business credit, you’ve probably heard terms like “tradelines, trade credit, corporate tradelines, or vendor accounts.” You may even know they are important, but aren’t sure how to get them and how they can benefit your business. Here we’ll demystify them:
What Is a Business Tradeline?
A business tradeline is a credit account between a business and vendor. Although they are not a business loan or line of credit like business credit cards, a business line of credit, or a small business loan, they are a very underrated form of business credit and a powerful tool for establishing and strengthening your business credit profile. Like other small business credit options, they include information from vendors who report to commercial credit reporting agencies. For example, a vendor account with net-30, net-60, or net-90 terms. If that vendor reports you good credit history to a credit bureau, it creates a business tradeline.
Learn more about Vendors that will Help You Build Business Credit
Why Tradelines Matter
Tradelines are important for building business credit because they provide information about how you’ve handled credit in the past. Without that kind of information, it is difficult for a credit scoring model to predict how you will pay in the future. The Paydex score produced by D&B, for example, requires three tradelines to calculate a score.
How to Find Tradelines That Report
Establishing good business credit is often a confusing process because not all lenders and vendors report to all major business credit reporting agencies. For example, information about your equipment lease may show up in the PayNet database, while information about business credit cards is often shared with lenders via the Small Business Financial Exchange (SBFE).
Tip: Need help finding accounts that report to the appropriate business credit bureau? Use the free tools in your Nav account. Specifically, the BusinessLauncher tool will help you identify companies that report, and the Nav Marketplace identifies accounts that report with the CreditBuilder badge.
You may have heard the term “seasoned tradeline.” It refers to accounts with an established credit history. Some companies offer to sell seasoned tradelines to help business owners establish credit quickly. Here’s how it works:
A company will establish a corporation, and get accounts under that corporate name, with the goal of “flipping” it. They will then sell this “shelf corporation” to another business with the promise that they will immediately have access to thousands of dollars in credit lines. But rarely does this turn out to be what it seems. The established credit lines may not be the type of funding the new business needs, and if lenders catch whiff of the new business owner trying to take advantage of this scheme they can quickly shut those accounts down. “It’s usually shady,” says Nav’s Chairman of the Board Levi King. While there may legitimate reasons for buying a shelf corporation, using one to try to get access to funding your business otherwise would not qualify for should not be one of them.
A seasoned tradeline is usually shady!
Building strong business credit is a worthwhile goal. It can open up avenues to better financing for your business, help you separate personal and business credit, and give potential lenders a reason not to focus on your personal credit history. Establishing positive tradelines is a crucial step in that process. To do so, you will want to take the following steps:
- Open a business credit card which will be reported to commercial credit agencies
- Establish accounts with lenders and/or vendors who will report to the business credit agencies. You can find them by using the free BusinessLauncher tool available with a free Nav account.
- Pay your accounts on time (early is even better) and you’ll be on your way to establishing a high business credit score.