It’s not unusual to feel confused about how corporate credit works. If you’re unsure how to build corporate credit — also called business credit — for your company, you certainly aren’t alone.
Even if you understand how a good personal credit rating works, business credit reporting works a little differently. In this article, we‘ll work to answer your questions when it comes to establishing credit for your business.
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Establish Corporate Credit
Below are a few frequent questions which small business owners often ask about how to build corporate credit for the first time.
- What is corporate credit?
- How do you build corporate credit?
- Do corporate cards affect credit?
We’ll break down the answers to these questions below. Once you learn what it takes to establish business credit, you’ll gain the competitive advantage you’ve been looking for to help your company take off or expand.
What Is Corporate Credit?
Corporate credit (a.k.a. business credit) is established by a business rather than a consumer. As a small business owner, it’s important to build your corporate credit separately from your personal credit. This credit information can be used by potential lenders, vendors, business partners, or clients.
When you open certain types of accounts in your business’s name, the business credit bureaus, such as Dun & Bradstreet and Experian, may receive information from your creditors and vendors about how you manage those accounts. This information is known as your business credit history. It’s used to create your business credit file with each of the bureaus (depending on where the data is sent).
Your business credit history includes:
- On-time and late payment history
- Account balances
- Debt utilization ratios, or how much of your available credit you’re using
- Liens or judgments against your business
- UCC filings
All of this information might find it’s way onto your corporate credit reports. And, if any such information is added to a corporate credit report for your business, that bad corporate credit history could impact your business’s ability to borrow money in the future.
How Do You Build Corporate Credit?
You might asking, “How do I get corporate credit?” While you can’t build corporate credit overnight, the right plan and some dedicated follow through on your part can help you to establish a healthy credit profile for your business.
Here are five basic corporate credit tips to get started:
- Set up your business the right way. To appear legitimate in the eyes of lenders and vendors, you should do the following:
- Create a separate legal business entity (S corp, C corp, LLC, etc.).
- Apply for a federal employer identification number (EIN).
- Get a dedicated business phone number and address.
- Open a business checking account.
- Consider a business credit card. As a new (or new-to-credit) business, qualifying for a loan can sometimes be tricky. But if your personal credit is in good shape, opening a small business credit card typically isn’t difficult. A secured business credit card may be an option as well, if your personal credit score needs improvement.
- Add on vendor accounts where possible. Getting a net-30 account from a vendor who reports to the commercial credit agencies could be a great potential way to start building corporate credit for the first time. There are also net-60 and net-90 accounts available to corporations. Nav Prime isn’t technically a net-30 vendor, but it does give you up to two actively reporting tradelines reported to all major business credit bureaus
- Always, always pay on time. Some business credit scores, like Dun & Bradstreet’s PAYDEX Score, are based 100% on your company’s payment history. On-time payments are a crucial component of any successful business credit building strategy. Even one late payment could damage your corporate credit score.
- Monitor your corporate credit. Credit reporting errors, identity theft, or fraud can derail the progress you’ve made building corporate credit. It’s crucial to review your corporate credit reports for accuracy on a regular basis. Monitoring your credit score with the different reporting agencies is also a good way to keep an eye on the overall health of your business credit profile.
An alternative option for building corporate credit is acquiring a shelf corporation — an aged company that has already established corporate credit. However, this is not recommended because there is a lot of legal concerns associated with shelf corporations.
Do Corporate Cards Affect Credit?
There’s a difference between corporate credit cards and small business credit cards. Unless your business is already a multi-million dollar corporation, you most likely will need a small business credit card to get started.
Business credit cards generally require you to sign a personal guarantee to qualify for a new account. Signing a personal guarantee means that you agree to be held liable for the debt in the event your business fails to pay back what it owes to the credit card issuer. A personal guarantee on a business card, however, doesn’t mean that the account will automatically appear on your personal credit reports (unless your company defaults on the account).
Most business credit card issuers will report the account to one or more of the business credit reporting agencies. However, many business card issuers will not report the account to the personal credit bureaus.
That might be a good thing. Opening a business credit card can be a great way to build credit for your company. Yet a heavily utilized business card could hurt your personal credit scores. Which corporate credit cards help you build business credit?
Personal credit scoring models, like FICO and VantageScore, base a significant portion of your credit scores on your revolving utilization ratio. If you have a business credit card showing up on your personal credit reports with a high percentage of your credit limit in use, the impact on your personal credit scores could potentially be very negative.
Corporate Credit Building Tool
Trying to build business credit from scratch can feel overwhelming. If you’re looking for a corporate credit building program to help you navigate the process, become a Nav Prime member. You’ll get up to two business tradelines — one from your monthly payment and one from regular use of your built-in Nav Prime Card.*
Free Corporate Credit Report
With personal credit, the Fair Credit Reporting Act (FCRA), gives you the right to claim a free copy of each of your reports once every 12 months. Your business, unfortunately, doesn’t enjoy these same rights.
Nonetheless, it’s still possible to access your corporate credit report free of charge. Currently, there are two ways you can secure free business credit reports.
- Get started with Nav. A Nav account gives you access to both your business and personal credit summaries. Nav Prime members get Detailed Credit Reports and more.
- Request a free corporate credit report after a business loan denial or adverse approval. If your company applied for credit and was denied or adversely approved (aka you qualified for less attractive rates or terms), you may be able to request a free business credit report. When your business credit application is denied or you receive a less attractive offer due to your credit rating, the lender may mail you something called an adverse action notice.
The notice informs you which corporate credit report was reviewed along with your application. You can send this letter, along with a written request for a copy of your commercial credit report, to the appropriate business credit bureau (Dun & Bradstreet, Experian, Equifax).
Unfortunately, being denied or adversely approved for business credit isn’t a guarantee that you can claim a free business credit report. Here’s why:
- Unlike consumer lenders, business lenders aren’t required to mail out adverse action notices. So, you might never receive this letter in the first place. If you don’t receive the adverse action letter, you can’t request a free corporate credit report.
- You must request your free business report within 60 days of your business’ credit denial or adverse approval.
Additionally, even if this method works, it will only allow you to access your corporate credit report from one business credit bureau.
Corporate Credit Score
In addition to checking your reports, it’s wise to monitor your corporate credit score with each major business credit bureau as well. Lenders, vendors, and others will review your corporate credit score as a way to judge the risk of doing business with your company.
Here are three of the most common corporate credit scores used:
Corporate credit scores
|Corporate Credit Score
|Credit Score Range
|What the Score Does
|Who Uses the Score
|Dun & Bradstreet’s PAYDEX Score
|Reviews payment history to measure how promptly you’ve paid your bills in the past. (Tip: Paying early may boost your PAYDEX Score.)
|Commonly used by lenders, landlords, suppliers, vendors, and others.
|Experian’s Intelliscore PlusSM
|Predicts the likelihood of serious delinquency within the next 12 months.
|Commonly used by lenders, suppliers, vendors, insurance companies, etc.
|FICO LiquidCredit Small Business Scoring Service (SBSS)
|Combines corporate and business credit reports to predict the likelihood you’ll pay your bills on time.
|Commonly used by lenders who issue SBA loans and others.
You can view your scores with the major business credit bureaus, including the FICO SBSS score, with Nav Prime and its add-ons. Remember, a good corporate credit score can open doors for your company. It can help you to save money by qualifying for the best rates and terms available when your business needs to borrow. Better corporate credit scores could even help you to secure lower insurance premiums.
*Nav Technologies, Inc. is a financial technology company and not a bank. Banking services provided by Blue Ridge Bank, N.A., and Thread Bank, Members FDIC. The Nav Visa® Business Debit Card is issued by Blue Ridge Bank, N.A., and the Nav Prime Charge Card is issued by Thread Bank pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa cards are accepted. Your funds are FDIC-insured up to $250,000 through Blue Ridge Bank, N.A., Member FDIC.
This article was originally written on May 23, 2019 and updated on January 23, 2024.
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