Steps to Establish Business Credit
Step 1: Form an LLC and Get a Bank Account
The first step to building business credit is setting up your business as a legal entity with a business bank account. This is the foundation for establishing business credit.
Form an LLC or Corporation
Business owners must form an LLC or corporation because business credit can only be attached to a legal business entity. This is because other business structures have no legal separation between the owner and the business. When there isn't any legal separation, only the business owner's personal credit and SSN can be used to apply for loans, etc.
Most small businesses will benefit most from forming an LLC. Forming an LLC is easy and relatively inexpensive in most states. LLCs can also protect your personal assets in the event that your business suffers a loss.
Only businesses that require venture capital should form a corporation.
Get an Employer Identification Number (EIN)
After choosing a business structure, you'll need to set up an Employer Identification Number (EIN) because banks require an EIN when starting a new business bank account. An EIN is a unique number issued by the IRS that's used to identify businesses.
Set Up a Business Bank Account
Setting up a business checking account allows you to separate your business revenue and expenses from personal income and this gives you more credibility in the eyes of financial institutions.
Your business bank account can also be used to get a secured business credit card and help you get a business loan in the future. Most lending institutions will require 6 months of statements from your business bank account to assess your creditworthiness for a loan.
Step 2: Open Accounts with Vendors that Report to the Credit Bureaus
In order to see a positive impact on your credit profile, the business credit bureaus recommend maintaining at least five active accounts that regularly report your transactions.
Acquiring a secured business credit card and net 30 accounts will get your business credit history started and growing.
Apply for a Secured Business Credit Card
As a new business with an undeveloped credit profile, it is very unlikely that you would get approved for an unsecured business credit card from a bank like American Express or Chase Bank.
Companies like Divvy offer secured cards for new businesses that are looking to grow their credit profile. Your spending ability is secured by the balance in your bank account and there are no minimums to get started.
All your spending is reported to credit bureaus like Dun and Bradstreet (D&B) and the Small Business Financial Exchange (SBFE). Overtime, as your credit score improves, you can graduate from a secured to an unsecured card.
Recommended: Get the Divvy card to build your business credit quickly and to manage all your company expenses with Divvy’s card-plus-software solution that easily integrates with your accounting platform.
Set Up Net 30 Accounts
In addition to a secured credit card, we highly recommend net 30 accounts as building blocks for your credit profile. With multiple lines of credit reporting positively to the bureaus every month, you can quickly establish the creditworthiness of your business, allowing you to qualify for business loans that'll help you grow your business.
Net 30 accounts are set up with vendors that offer businesses a "buy-now-pay-30-days-later" option on business services or products. If you make your payments on time with net 30 vendors, they will report positively to business credit bureaus like Dun & Bradstreet or Experian.
Net 30 accounts are easy to open and maintain— as long as you are an active LLC or corporation, you can open a net 30 account. To learn more about net 30 accounts, read our Net 30 Vendors review.
TIP: Be sure to have your EIN and business documents handy when applying for your net 30 accounts.
Apply for Business Loans
Once you have maintained your credit lines for at least 6 months and have attained consistent, positive cash flow in your business you might be eligible for a business loan.
Business loan providers will look at your business credit score, based on your EIN, to determine your eligibility. Your personal credit score will not impact your ability to get a loan, hence it is important to grow your business credit.
For most businesses, a loan can be helpful in meeting short and long-term expenditures and they are a popular form of financing to grow your business. However, be careful in choosing your loan provider to avoid companies with predatory interest rates that increase over time.
Before applying for a loan, be aware that financial institutions are generally looking for the following:
- A six-month track record of consistent revenue is reflected in your business bank account.
- Annual revenue that is higher than the requested loan amount.
- A good credit score — "Good" credit scores are typically categorized by lenders as ones that are between 640 and 700. If you're looking to apply for an SBA or term loan, the minimum credit score is generally around 680.
- A copy of your articles of incorporation/organization, EIN number, and your certificate of good standing.
- In some cases, loan companies will want to see your ecommerce accounts to determine your recurring revenue.
Pay All Bills and Credit Lines on Time
Paying all vendors, lenders, and creditors on time (or better yet, early) is one of the most important ways to build and maintain your business' credit score.
Here are some tips:
- Prioritize bills by importance (e.g., taxes, payroll, aged payables, utilities and rent, key vendors and suppliers, secured debts, insurance premiums, large then small debts, credit cards, other business debts like advertising, etc.)
- Set up reminders on a calendar app (e.g., Google Calendar, Microsoft Outlook Calendar, etc.) to remind you when bills need to be paid.
- Make sure to pay at least the minimum payment for all of your bills.
- Even better, pay all balances in full or early each month.
- Using a working capital loan to pay your bills each month, then paying the balance with your business bank account is a recommended (but not necessary) tip that will help you better manage your cash flow while also building your business credit profile.
Get a DUNS Number
A DUNS number is a unique nine-digit identifier obtained through Dun & Bradstreet. This number identifies your business as separate from every other business around the world. This is the number creditors use to look up your business credit file to find your credit history.
Step 3: Know What to Avoid When Building Business Credit
It is in every business owner's best interest to know what will hurt your business' credit score and affect your company's risk assessment.
Avoiding the following practices will help your business maintain its credit score and reduce potential risks.
Using Predatory Lenders
This may seem obvious but predatory lenders are becoming more and more sneaky and are good at preying on businesses seeking to build business credit. They offer expensive loans that may seem good at the time but are near impossible to repay. In addition, they tend to offer you a high daily interest rate that can put you out of business quickly.
Tip: Only take on business loans you can afford to repay, and if a lender offers you a daily interest rate, run as fast as you can.
Paying With Personal Accounts and Credit Cards
Your business credit report is a reflection of your business's ability to repay its own debts. Paying your business's debts using your personal accounts indicates to creditors your business has taken on too much debt and therefore should not be extended more credit.
Tip: Pay back creditors using a business checking account or a business credit card. Never repay debts with a personal checking account or personal credit card.
Net-30 Vendors That Don't Report to Credit Bureaus
Never assume a net 30 trade vendor will report your repayment history to the major business credit bureaus; there are many that don't. Those that do not report tradelines on your business credit reports will not help you build business credit.
Tip: Ask potential trade vendors which business credit bureaus they report to and how frequently. Only do business with net-30 trade vendors that report to the major business credit bureaus.
Having Outdated Business Information
Not updating your business information is a surefire way to hurt your business credit score and negatively impact your likelihood of obtaining a business loan.
Tip: Make sure your business credit reports are up to date and accurate, and check that your business documents are properly filed at the local, state, and federal levels. If anything has been falsely reported, make sure to get it updated immediately.
Step 4: Monitor Your Business Credit
Monitoring your business credit yourself requires regularly pulling your business credit reports and checking your business FICO score. It's recommended that you become acquainted with the different credit reporting agencies and learn how to use them to pull your business credit report.
Know the credit reporting agencies that matter most:
- Fair Isaac Corporation (FICO) Small Business Scoring Service (SBSS) Score (scores creditworthiness from 0-300).
- Dun & Bradstreet PAYDEX Score (scores creditworthiness from 0-100).
- Experian Intelliscore Plus Credit Score (scores creditworthiness from 1-100).
- Equifax Payment Index Score (scores creditworthiness from 1-100), Business Credit Risk Score (scores risk from 101-992; the higher the score, the lower the risk), and Business Failure Score (scores risk from 1,000-1,610; the higher the score, the better likelihood your business will still be around in 12 months).
Dun & Bradstreet is one of the oldest credit reporting agencies for businesses. A DUNS number is a unique nine-digit identifier obtained through Dun & Bradstreet. This number identifies your business as separate from every other business around the world. Getting an account set up isn’t complicated, and it doesn’t cost anything. This is the number creditors use to look up your business credit file to find your credit history. You can get a DUNS Number easily with our guide
Learn how to pull your credit reports and check your business FICO score with our guides:
- Pull your Dun & Bradstreet credit report.
- Pull your Experian business credit report.
- Pull your Equifax business credit report.
- Check your business FICO score.
Tip: If you don't have time to monitor your business credit, consider outsourcing this task to a business credit monitoring service. They will monitor your business credit reports and provide valuable consultations and insights to help you build business credit.
Lastly, fix any business credit errors and discrepancies:
- Check each credit report thoroughly.
- Note any wrong information.
- Dispute errors and inconsistencies with each credit reporting agency.
- Make sure to update your business information (e.g., business phone number, website, address, etc.)
- Check your reports regularly to ensure accuracy.
Important: Privacy laws protect personal credit; however, business credit is not protected, and anyone can gain access to your business information.
Tips to Establish Business Credit Faster
If you are in the business world or have been in business for any length of time, you know how important it is to establish a robust financial history. You also understand that building business credit is a time-consuming process and one that not many businesses take on themselves. As such, most businesses wait to build up their credit until they need it. Unfortunately, waiting to build up credit can be very costly. If you are looking to start on a clean slate with your credit, take heart. There are some simple ways to do it.
Negotiate better terms
If you want to learn how to build business credit quickly, one step you can take is to negotiate better terms with your vendors. The terms you have now may be very unfavorable to you in the future.
Ultimately, though, even if your company is not a large household name, how you manage your vendors demonstrates to creditors your reliability as a regular borrower. Therefore, if you have a good business history and good references, you can often secure better terms and interest rates when you negotiate new contracts.
In fact, by arranging better terms today, you can help build up your own personal credit today and have better terms in the future.
Work with your lender
Another important step to consider if you need to learn how to build credit quickly is to work with your lender. Not only will your lender be more willing to help you get better rates on loans and other types of purchases, but they may also provide you with a helpful service called an installment arrangement.
Installment arrangements allow you to pay down debt over a certain amount of time. By paying down a percentage of your debts with these payments, you can improve your credit history. This works best for people with small-business debt, but can also help you maintain a good credit rating if you do not have a significant amount of debt.
When you work with your lender to establish this arrangement, they can provide you with a prearranged repayment plan for you to follow. They can also offer to report your progress to your creditors each month, which can further boost your credit scores.
This is an important step to take if you want to know how to build business credit quickly. By regularly making payments on time, you can show creditors that you are responsible and that you are a safety risk for them to provide you with additional funding in the future.
Open new accounts
One other step to take if you need to learn how to build business credit quickly is to open new accounts. Many lenders offer trade lines of credit that can be used to finance business improvements, equipment purchases, and even smaller loans for other business expenses.
However, keep in mind that most trade lines of credit carry very high-interest rates. If you want to learn how to manage these payments efficiently, then you may want to consider opening several accounts instead of holding onto just one or two.
Your business credit profile consists of a number that links to your payment frequency. This number is reported to all of the different creditors you owe money. Lenders use this information to determine your payment priority, which means that they assign a higher ranking (more favorable one) to accounts that consistently pay off their balances in full.
If you consistently pay off your bills on time, you can easily raise your business credit scores. Most lenders will report your payment frequency to the credit bureaus as a priority number, and if you maintain a sufficiently high payment frequency, you may find it easier to increase your credit scores with the various business credit agencies.
The Future of Business Credit Scores
With the help of AI (Artificial Intelligence), credit scores are being improved by the minute. AI is also helping businesses to assess their creditworthiness and making it easier for them to get loans.
AI credit assessment can help companies by speeding up the assessment process, eliminating any human bias in the evaluation, and providing better data for lending decisions.
Our Other Business Credit Guides
Frequently Asked Questions
How to access your business credit report?
A business credit report is a document that is obtained from a financial institution to provide information about the credit history of a person or company.
It can be accessed in one of two ways - either by providing personal details or by accessing the report online.
Before accessing your business credit report, it is important to verify that you are the owner of the company or you have permission from the owner.
Here are the three business credit reporting agencies:
- Dun and Bradstreet
- Experian Business
- Equifax Business Credit
What are the business credit reporting agencies?
Business credit reporting agencies are the eyes and ears of the business world. They collect and organize different types of information, which helps companies to make better decisions.
Today, some businesses do not have any formal credit reporting agencies - such as startups or small businesses. Some organizations only use one type of business credit reporting agency – such as big corporations or government institutions.
To avoid pitfalls, small businesses should use their judgment in deciding what type of business credit reporting agency to use and how much they represent their needs.
Though there are numerous business credit reporting agencies, the main three are:
- Dun and Bradstreet
- Experian Business
- Equifax Business Credit
What does Dun and Bradstreet do?
Dun and Bradstreet (D&B) is a credit reporting agency that specializes in providing business information such as credit reports, financial data, and business profiles to companies of all sizes.
Dun and Bradstreet is a private American company that provides its services free of charge for people who are either starting their own businesses or want to get a better understanding of the financial status of their existing companies.
There are three key reasons why D&B is a company that we should be familiar with:
1. Dun and Bradstreet can give you valuable business insights
2. Dun and Bradstreet collects data on companies
3. Dun and Bradstreet can give you an idea of how to market your company
Who needs a DUNS number?
DUNS number is an identifier unique to US companies that lets them register with Dun and Bradstreet.
The DUNS number has become mandatory for most US businesses wanting to build business credit, as it’s required by most banks like Chase, Bank of America, Wells Fargo as well as business credit card providers.
If you want your business to be eligible for loans from some banks or credit card companies you must have a DUNS number.
What credit score does a new business have?
A new business is considered to have a non-existent or lower credit score for the first six months. It takes time for the business to build a good credit score and it varies depending on various circumstances.
To begin building business credit start by opening a business bank account and opening up some tradelines with net-30 vendors. Net-30 vendors report to the business credit agencies frequently, so make sure you pay off your invoices in full every 30 days. Finding Net-30 vendors to build business credit is the best place to start when you want to establish business credit.
How do I check my business credit rating?
Credit agencies like Dun& Bradstreet, Equifax, and Experian have been around for decades, providing credit reports and ratings for consumers that range from excellent to hopelessly bad. Now, these agencies are increasingly providing their services to businesses as well, with help from technology such as AI and big data analytics.
A business credit rating is determined by the information reported by a company to an agency that rates businesses' creditworthiness. Credit agencies, like the ones mentioned above, verify these reports and assign a score.
Check with each business credit agency to find your company's assigned score to determine your company's creditworthiness.
Does your business have a credit score?
Many businesses, specifically startups, do not have a credit score and may not even know what a credit score is. A credit score rates how likely you are to pay back your debt.
To find out if your business has a credit score check with the business credit agencies. There are three main ones to check with; namely:
- Dun and Bradstreet
- Experian Business
- Equifax Business Credit
How can I improve my business credit score?
The best way to improve your business credit score is to establish business credit over time by making sure you always pay your existing net-30 trade accounts on time as well as other lenders. Also, make sure your good payment history is being reported to the major business credit reporting agencies.
How do I build business credit with an EIN?
Companies have a lot of different ways of building their credit. One way to build business credit is through an Employee Identification Number (EIN) which can be obtained through the IRS for free. If you are an entrepreneur or even a small business owner, it can be hard to build up your company's credit if you don't have an EIN number.
How many months does it take to build business credit?
It takes anywhere from 1-6 months to build business credit. Factors such as your credit score and the amount of collateral needed will greatly affect the time it takes to build business credit.
Depending on your financial situation and your business’s cash flow, there are options for getting financing faster than 6 months. These options include selling assets or using personal guarantees for company loans.
Does an LLC have its own credit score?
A newly formed LLC does not have its own credit score. It is up to the individual members of the company to maintain their own credit scores by building business credit.
The only reason an LLC would have a credit score is if they are applying for a loan or seeking investors who use credit scores in their decision-making process.
How can I get business credit with no money?
The first step to getting business credit is to establish a company. You can easily do this by registering an LLC, corporation, or other legal entity. Once you have a company, you must start a business bank account and set up net-30 tradelines with net-30 vendors. This will help you get started building business credit without needing money to get started.
Can an LLC build credit?
LLCs are a type of business entity that allows individuals or companies to hold assets in a single legal entity. LLCs are different from other companies because they have no separate legal personality; they are considered to be just "associates" of their owners.
An LLC can build credit through various means, such as by listing the company on the major business credit bureaus. In order to list on the credit bureaus, and establish a business credit file, an LLC requires a minimum amount of paid-in capital in addition to an annual asset turnover rate which is defined as revenue divided by total assets.
What companies give business credit?
Business credit is an essential tool for building trust and securing future business opportunities. It also helps people to get financed and invest in their businesses.
Some of the companies that provide business credit include banks, insurance firms, finance agencies, credit card organizations, etc. These companies offer a variety of financial products for different needs. All these products are available with different levels of financial risk.
How to open a business checking account?
Opening a business checking account is the first step to making your business more legitimate in the eyes of the bank and other lenders. It will also make it easier for you to deposit and withdraw money from the bank.
If you have been looking for a new banking partner, here are some things to consider before making your decision:
- Do you know which types of accounts are offered by that bank?
- Do they allow you to have more than one account?
- How much interest or fees do they charge annually?
- What kind of services do they offer that compare with your current banking options?
If you need help deciding which type of account would be best for your needs, ask an expert at the bank that you're looking into opening an account with. They'll be able to assist you further and answer any questions you may have.
Benefits of a business credit card?
There are many benefits to having a business credit card.
Some of the benefits include:
- You can have multiple cards and you can run them through your company
- You will be able to pay for your employees' expenses and reimbursements
- Your employees can earn cashback on purchases they make with their cards
- You have better access to financing, which is helpful if you need money for an emergency purchase
How to get a business credit card?
The process of applying for a business credit card is not complicated, but it does require time and patience.
First, you need to take out an application form from your bank or financial institution. You should be careful in compiling your personal details and financial information on this form as it is essential for obtaining a credit line from the lending institution. The form will ask you about your company’s name, business type, contact information such as phone number and email address, credit score (if applicable), current accounts with the bank, loan portfolio details, etc.
Next, you must wait for a decision from the institution. This usually takes a few days or weeks for the lender to review your information and make a decision to approve your company for the card, or not.
If approved, you'll usually receive your card in the mail, in about 7 - 14 business days.
How do you get startup business credit cards with no credit?
If you have no credit, the first step to getting a business credit card is to open a business bank account. Once you have that established, it's time to apply for the actual credit card.
What is an average application process like?
While there are many different ways to apply for a business credit card with absolutely no credit, most applications are completed within a few weeks from when they are submitted.
The application process usually consists of two steps:
Qualification involves submitting all necessary documents as asked and completing online eligibility checks.
The application includes filling out an online application form and providing additional details about your company's history and financial situation.
After this step, the bank will contact you with the terms of the offer that corresponds with your company's size and needs for its cards.
Which business credit cards do not report personal credit?
A credit card is typically used for purchase transactions and to access cash. This means the card is a liability because it relates to the individual's personal credit.
Most business credit cards do not report personal credit to a third party, which means they can be used without the worry of reporting your personal information.
A business credit card is designed for businesses and often comes with perks such as free flights or hotel stays, so that's why they are not considered liabilities.
Liabilities or not, a business credit card can help your business manage cash flow better, track employee expenses, and all of these are considered assets for a business.
What's a finance lender?
A finance lender is a company that provides lending services to individuals who are unable to borrow from traditional banks or other lenders. They help individuals get loans arranged pursuant to certain guidelines that they must follow.
Licensing and regulation for these entities are governed by the Federal Trade Commission (FTC). Finance lenders serve a unique niche for borrowers in this space and require a finance lender's license to conduct business.
The Federal Trade Commission (FTC) is responsible for regulating these companies. This includes ensuring that they comply with federal laws and regulations, as well as maintaining an up-to-date public listing with information about them.
How to get a business loan with bad credit?
To get a business loan with bad credit, you first need to prove that you have the potential to make money in the long term.
The best way to get a business loan with bad credit is by looking for some companies that offer loans to people with bad credit. These loans come in different formats and interest rates depending on your needs.
When it comes to getting a business loan, there are many factors that play into the equation. The company’s finances, credit history, and collateral are just some of them. The best place to start is by doing your research and finding reputable lenders with flexible terms that suit your needs.
What are business credit scores?
Business credit scores are a way to measure business creditworthiness. They are used in order to evaluate whether a company is likely to make timely payments, honor debt commitments, and comply with laws.
Both business and personal credit scores are important factors lenders take into consideration before deciding to approve you for a loan (or not), after pulling your credit reports. The best way to ensure you qualify for both business and personal credit loans is to build a solid business credit history. A strong business credit history will prove to lenders that you are capable of borrowing money and paying it back on time successfully.
Without a strong credit history, you're more likely to have a lower credit score. To build small business credit make sure you establish tradelines with net 30 vendors who report to the business credit bureaus.
Business credit bureaus use your employer identification number to rank your business's credit. This is similar to how consumer credit agencies use your social security number to rank your personal credit history. Both small business and personal credit are attached to a federal tax id number.