Why Is It Important to Build Business Credit?

Just like a personal credit score, a business credit score is the number that lenders will look at when determining whether to offer loans or do business with a company. For businesses, the number represents creditworthiness.

No one wants to make an investment in a company that could fail at any time, and no lender wants to hand out money that will likely never be paid back. When you build business credit fast and keep building it up over time, you’ll be much more likely to gain the confidence and trust of lenders, customers, and business partners.

According to the Federal Reserve Bank of New York, over half of all small business owners who seek funding don’t receive it. Often, the reason is a low or nonexistent business credit score.

how to build business creditImage source: Bigstock

The answer to the problem is for small business owners to build business credit fast and to continue to build business credit over time. Without a credit score, lenders have no idea if they can trust the business to pay back money and to be responsible with the funds they receive.

In addition to being a source of information for lenders, a business credit score can also be an important tool for attracting new customers or clients. Although there is a fee involved, anyone can access a business credit score, according to NerdWallet.

The information is public, so you can compare your own number to those of other companies as you attempt to build business credit over time. If a potential customer, client or business partner wants to check in before doing business with you, he or she may take a look at your credit history before making a decision.

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How to Establish Business Credit

Clearly, a strong business credit score is an important factor in any company’s financial and overall success. So, the question is how to build business credit and make your business more attractive to lenders and business partners. While many business owners will want to know how to build business credit fast, the process of establishing and building credit will take some time and effort. The work will absolutely be worth it in the long run as your company builds its reputation and becomes more attractive to lenders.

The first step, when asking how to get business credit, is to establish your business. Experian has a quick guide to setting up a business, which will start you on the process for how to obtain business credit. The guide gives instructions of how to set up the business as an LLC as well as how to get an Employer Identification Number which will make the company a legal entity and allow you to start to build business credit under that name.

If you’re worried about how to build business credit fast in order to secure funding, the next step is to open a bank account for your business, according to Experian. Be sure to use the legal name of the business when dealing with any business account rather than using your personal name. This is how you’ll begin to distance your personal credit from your business credit score.

Your business should also have its own phone number – separate from your personal phone number – that can be listed for clients, customers, banks, and credit bureaus to find you easily.

As you continue to learn about how to build business credit, try to avoid potential temptations to mix business and personal finances. One huge perk of business credit cards is that the credit limit is often much higher than the limits on personal credit lines. However, that credit needs to be used responsibly in order to keep your business credit score high.

Using your credit cards for both small and large purchases can help to establish your credit and help it improve, but the purchases must be legitimate and payments need to be made on time or early.

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Personal Credit vs. Business Credit

Many business owners will want to know whether their business credit score will affect their personal credit score. It’s difficult to completely separate the two. Many lenders will use a small business owner’s personal credit to help assess whether the individual can make smart financial decisions. Therefore, when working to build business credit, make sure that your own personal credit is in order as well.

Personal credit scores and business credit scores are compared in detail at All Business. As the guide explains, a business credit score is much simpler since businesses are judged mainly on whether bills are paid on time and whether your business has any outstanding debts whereas personal credit scores are based on over 80 factors.

NerdWallet highlights differences and similarities of personal and business credit. The most obvious difference is that a personal credit score will be in a range of 300 to 850, and a business credit score will typically be between 0 and 100. The other major difference is that personal credit scores are private and can only be accessed by yourself and some specific people or companies. However, as you build business credit, anyone can access your business credit score and information about the business after paying a fee.

Finally, while personal credit scores are based on the same scale and factors, those who want to build business credit will need to consider several companies, each with their own standards and factors. Keep in mind, when learning about how to build business credit, that while the scores themselves are based on accounts with your business name, many banks and lenders will also take your personal financial information into account when making decisions.


Primary Business Credit Score Companies 

There are three major companies that provide business credit scores. Score breaks down the difference between the three as well as explaining how to build business credit by focusing on all three. Below is a quick description of each credit bureau, along with information about what data each uses. This information can help you determine what areas you need to focus on in order to establish and build your credit score with each bureau.

Dunn & Bradstreet is the most frequently cited business credit score source because the company is focused only on businesses rather than also providing personal credit scores. Small Business Trends explains that D&B gives scores on a scale of 1 to 100. The way to build business credit through D&B is by paying all vendor bills on time. The score lets vendors know if your company can be counted on to pay if they choose to do business with you.

business credit score

Image source: Bigstock

While some may assume that keeping financial information private will prevent a business credit score from being made available to the public and vendors, it is not a solution. According to Small Business Trends, if sufficient information isn’t provided by the business, other information will be used. When determining how to obtain business credit from the company, providing information will most likely help your score.

Score provides more information about Equifax and Experian as well. Equifax uses information from the Small Business Finance Exchange to examine and report on the relationships between each small business and big lenders. Experian builds on that, collecting information from public records and private companies as well.

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How to Build Business Credit Over Time 

Just like with personal credit scores, it’s important to monitor your business credit score by checking it regularly and making note of any suggestions for improving the number. If the number looks much different than expected or if you notice red flags, be sure to look into the problem and resolve any issues. When working to build business credit, be sure to contact the credit bureaus if you notice any incorrect information on your account as well.

There are several things to do when looking into how to build business credit. The Small Business Administration is an excellent source of information for small businesses, offering tips on how to build business credit fast and continue raising a business credit score over time. The most important rule for how to build business credit fast is to work with vendors and make timely payments on any debts.

As with personal credit, a business credit score is affected by your credit limit and how much of that limit you use. It’s important to keep the amount of credit you use low as you work to build business credit. This shows that you can be responsible with your money and keep finances in control. If you use a business credit card responsibly, you can request to have your limit increased. If you continue to use the same amount of credit, even after having your limit increased, your ratio will go down and your business credit score will improve.

After determining how to obtain business credit and working to build business credit fast, you’ll want to solidify your positive reputation. Continue to make prompt payments, use your business credit responsibly, and avoid negative financial situations. Things like bankruptcies, liens, and negative court judgments will show up on your business credit reports and will impact your business credit score, according to NerdWallet.

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Resolving Poor Business Credit

Now that we’ve gone over how to get business credit, how to build business credit, and the importance of keeping your business credit score as high as possible, it’s time to address the problem of a poor score. Maybe you made a poor decision early on that has affected your ability to build business credit. Maybe you hit a rough patch and you’re struggling to make a comeback. Whatever your situation, there are steps you can take toward repairing your business credit score and getting back on the right track to financial success.

Chron has a detailed list of action steps that will walk you through the process of taking a poor business credit score and turning it into a number that lenders will approve. Start by taking an honest look at the bills your business has due. Create a plan for paying each past due bill and for tackling future bills. Just like many people do when working to improve their personal credit score, you can call lenders and ask for a payment schedule that works with your circumstances.

As you pay off past due bills, those late bills should be cleared from you record, right? Unfortunately, sometimes, things are missed, and your credit report may not show that debts have been repaid. It’s important for you, as a business owner, to keep a close eye on your report and resolve any issues. This point shows how to get business credit scores to show your accomplishments and prove that you can handle financial obstacles.

While you continue to build business credit, be discerning when it comes to borrowing money. Don’t take on more debt than you can afford to pay back. It may be great and encouraging to build business credit fast, but making wise decisions over a long period of time is what will improve your business reputation, your business credit score, and your financial success.

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