Building Business Credit: An 11-Step Guide

Building your small business credit lets you borrow more money, save on insurance, and protect your personal assets while generally making it easier for you to do business.

But how do you build your business’s credit score? And once you have a good score, how do you keep it?

Here’s our step-by-step guide to building business credit the right way.

1. Get an EIN

An Employer Identification Number (EIN) is a unique nine-digit number that identifies your business to the IRS. This key piece of business information is legally required if you have any employees, operate as a corporation or partnership, or withhold taxes on income.

Get an EIN and start using it instead of your Social Security number whenever you get a credit card, small loan, or line of credit. (Consider getting a business PO box and a separate business phone number as well.)

2. Separate your business from your personal life

Building business credit means building up a separate credit history, as your business credit history should be based only on business activity. It’s difficult to build a separate credit history if your business finances are mixed in with your personal finances.

If you haven’t already, start keeping a set of up-to-date records for all your business expenses and revenue that are separate from your personal ones. Be sure to also set up a separate business bank account using your EIN and use that account for all your business transactions.

This doesn’t just help when building your small business credit—it’s good business practice, saves you a load of stress around tax time, and could protect you from being held personally liable for any debts incurred by your business.

3. Incorporate your business

If you start a business without choosing a specific entity type, you are, by default, a sole proprietorship. In the eyes of the IRS and financial institutions, a sole proprietorship and its operator are the same entity. So your credit score is your business’s credit score.

Whether you’re a startup or an established business, consider making your business a separate entity by incorporating or forming a limited liability company (LLC).

These types of business entities ensure that your business credit profile is separate from your personal credit profile and protect your personal assets from getting seized if you ever can’t repay your business debts as a business owner.

Keep in mind some lenders may require a personal guarantee in case you default on your loan. If you agree, your personal assets are on the line no matter your business structure.

4. Familiarize yourself with the major credit bureaus

Unlike personal credit (or consumer credit) information, which is collected automatically, small business credit information is sent in voluntarily by the companies you do business with. That means that even if you pay your bills on time, your business credit scores could still be outdated or completely wrong.

You’d be surprised by how common it is for companies not to have basic information—like a company telephone number or business address—on file with their business credit reporting agencies. That single error could be all that it takes to derail a loan application.

Catch the mistake now, or a loan provider will do it for you! Register with the major credit bureaus—Equifax, Experian, and Dun & Bradstreet are the major ones—and make sure the information they have on file for you is correct. (You can do so by registering for an account on each bureau’s website.)

If you do see an error, make sure to submit a dispute. Most of the major credit bureaus will let you submit disputes through their websites.

You should also get familiar with your FICO score. A FICO score is a three-digit number based on your credit reports indicating how likely you, the borrower, are to repay a loan. Lenders and credit card issuers may use this number to determine your eligibility for credit.

5. Order your business credit report

While personal credit reports have scores ranging from 300 to 850 points, business credit scores don’t really follow an industry standard.

For example, in addition to the credit score they give you (scale of 0-100), Equifax also includes a “Business Credit Risk Score” (101 - 992) and a “Business Failure Score” (1,000 - 1,880) in their reports. Dun & Bradstreet also includes a “Commercial Credit Score” (101 - 670), and a “Financial Stress Score” (1,001 - 1,875).

Though it will cost you money, it’s a good idea to order a credit report from each of the major bureaus at least once a year to familiarize yourself with the different reporting methodologies and to stay on top of any errors or dips in your score(s).

6. Pay your invoices and bills on time

Although the major business credit bureaus of Equifax, Experian, and Dun & Bradstreet use different formulas, they all calculate your score based on your repayment history. They’ll gather this information from your company “books,” companies you’ve done business with in the past, banks and other financial institutions, and trade associations.

The best way to keep your repayment history sparkling clean is to stay on top of your payments to suppliers. Anyone you pay for a good or service counts as a supplier here, and any payments your business makes could influence your business credit score, including:

• Lease payments for vehicles and equipment
• Fees you pay to contractors
• Utilities payments
• Rental fees you pay for tools, equipment, office and warehouse space
• Subscription fees you pay for software, online services, publications, etc
• Retainer fees you pay to your accountants, lawyers, and other professionals
• Interest payments for loans or credit lines
• Fees you pay for advertising online, in newspapers, on TV
• Providers of bulk office supplies

If your repayment history shows that you consistently pay your suppliers on time, it will be easier to develop strong business credit. If you don’t, your score will reflect that.

7. Work with vendors that report to credit bureaus

If, like most companies, you buy goods and services on credit from your suppliers, make sure they’re reporting all of those transactions to the credit bureaus. Companies that do this are called “trade references.”

Ask your suppliers whether they’re already signed up as trade references with each of the major credit bureaus, and ask them to consider signing up if they aren’t.

Even if your suppliers decide not to voluntarily become references, you might still be able to add them as a reference yourself. Dun & Broadsheet lets you submit references through its “CreditBuilder” service, for example. (Just make sure they’re on D&B’s list of recommended references first.)

8. Pay those vendors early

Some bureaus will increase a credit rating if the small business owner has a history of consistent early bill and debt payments. If you know that a supplier is reporting your payment history to a business credit bureau, paying them as early as you can could give your business credit score a huge boost.

9. Don’t fall behind on interest payments

Falling behind on interest payments doesn’t just create financial problems for your company. It also signals to potential creditors that you’re at a higher risk of default, unable to maintain a steady cash flow.

Plus, your financial institution opens up a trade line with a credit bureau any time you open a credit account. Think of a trade line as a direct link to your account, allowing the bureau to monitor everything you do with your credit. They’ll know when payments are late, even by a day—and that could disproportionately hurt your business credit score.

10. Don’t take on too much debt

Old and new businesses alike need to borrow money to make big changes. But borrowing more than you need can negatively impact your credit score, even if you can pay it off.

Be mindful of your credit utilization rate. Credit utilization is how much you owe relative to your credit limit. For example, if you have a credit card with a $10,000 credit limit and you currently owe $1,000 on it, your credit utilization rate is 10% because you’re using 10% of your total credit. As a general rule of thumb, keeping your credit utilization rate below 30% can improve your credit score—and provides a buffer for potential big expenses.

If you can’t get enough money without borrowing over this self-imposed credit limit, consider other small business financing options.

11. Stay out of legal trouble

This is one of the most surefire ways of hurting your business credit score—especially if your legal problems have to do with debt and unpaid suppliers! Bureaus take public records, such as legal proceedings, into account when setting your credit score.

And remember…

Anyone can see your business credit

Unlike personal credit scores, which are only visible to you and a few select institutions, anyone can request to see your business credit file for any reason. All they need is your business name or your D-U-N-S number (Data Universal Numbering System).

Your personal credit score still matters

In addition to checking your business credit, lenders could also check your personal credit history when deciding whether or not to give you a small business loan, or while setting interest rates on lines of credit.

Building credit takes time

Building good business credit or repairing a bad rating can take months, even years of staying on top of your payments. Start building business credit as early as you can, even if you don’t necessarily need to borrow money now.