How to Establish Business Credit

Establishing business credit requires a number of tasks, including establishing your business as a legal entity, setting up net 30 accounts, and getting an easy-approval credit card.

This guide will teach you how to establish business credit in four straightforward, easy-to-follow steps.

Looking to Build Business Credit? Apply for an easy approval business credit card from Tillful and build your business credit quickly.

Steps to Establish Credit for Your Small Business

Step 1: Form an LLC and Get a Bank Account

The first step to building business credit is setting up your business properly. This will serve as the foundation for establishing business credit.

Form an LLC or Corporation

Running your business as a legal entity (LLC or corporation) is often required by banks and lenders. Most small businesses will benefit most from forming an LLC. Only businesses that require venture capital should form a corporation.

You can't effectively build business credit as a sole proprietorship because your personal income is attached to your business income.

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.

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Recommended: Northwest will form your LLC for you for $39 (plus state fees).

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.

You can get your EIN for free on the IRS website, via fax, or by mail. If you’d like to learn more about EINs and how they can benefit your LLC, read our What Is an EIN article.

Set Up a Business Bank Account

Setting up a business checking account is necessary because banks and lenders will require copies of bank statements during the loan approval process.

TIP: Be sure to have your EIN and Articles of Organization handy when applying for a business bank account.

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Getting a Lili online business checking account is an ideal way to start your credit building journey.

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Step 2: Build Business Credit History

Setting up net 30 accounts and easy-approval credit cards will get your business credit history started.

Set Up Net 30 Accounts

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 these net-30 vendors, they will report it to business credit bureaus like Dun & Bradstreet.

Net 30 accounts allow you to build business credit from the ground up. To establish business credit, you'll need to open at least five net 30 accounts that report to the business credit bureaus.

Once you have an established line of credit with several net 30 vendors and have a good payment history with them, you'll be able to apply for business credit cards and loans from banks or other lenders.

TIP: Be sure to have your EIN and business documents handy when applying for your net 30 accounts.

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Open Your Net 30 Account With Office Garner

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Apply for a Business Credit Card

Getting a business credit card is an essential step for building business credit. An easy approval business credit card will report as a tradeline on your business credit report.

The qualifications for applying for a business credit card vary by company and bank. For example, some banks require applicants to be in business for more than two years, but easy approval credit card lenders do not.

TIP: Be sure to have your EIN and Articles of Organization handy when applying for a business credit card.

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Recommended: Visit Divvy to apply for their business credit card and build your business credit quickly.

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Increase Your Number of Credit Lines

Build more business credit by applying for business loans and business credit cards. Approval for these types of credit vehicles is now possible since you have net-30 vendor tradelines on your business credit reports.

Apply for Business Loans

Business loans are one of the most popular ways for entrepreneurs to start and grow their businesses. By applying for a business loan, entrepreneurs can get the money they need to start producing and selling their products.

Before applying, make sure that you have the following:

  • An established track record in your industry.
  • Evidence of how your company is profitable and how much revenue it generates every month.
  • A solid plan to repay the loan on time with interest as well as collateral where needed.

Follow these steps to set up a working capital loan:

  1. Contact a bank to inquire about a working capital loan.
  2. Find out all the terms and conditions and what the interest rate will be.
  3. Check around with other lenders to find the best terms.
  4. Make sure your credit is solid; meaning, you’ve paid your accounts in full each month, and your credit score is high enough to qualify for a working capital loan.
  5. Apply for the loan.

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 seen 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 the main credit reporting agency for businesses. Getting an account setup isn’t complicated, and it doesn’t cost anything, but will ensure you start getting trade lines as you establish and build credit with vendors and other creditors.

Learn how to pull your credit reports and check your business FICO score with our guides:

Tip: If you don't have time to monitor your business credit, consider outsourcing this task out 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 out 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 really 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 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 safe 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 a number of 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 to. 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, eliminate any human bias in the evaluation, and providing better data for lending decisions.

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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, there are some businesses that do not have any formal credit reporting agencies - such as startups or small businesses. There are also organizations that only use one type of business credit reporting agency – such as big corporations or government institutions.

To avoid pitfalls, small businesses should use their own 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
  • Application

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 has a relationship with 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 worry of reporting your personal information.

A business credit card is designed for businesses and often come 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 lenders 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, your 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 is similar to how consumer credit agencies use your social security number to rank your personal credit history. Both small business and personal credit is attached to a federal tax id number.