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If you’re looking to secure financing for your small business or score a better rate on a business insurance policy, establishing and building your business’ credit can boost your chances of doing so.
Good business credit helps prove to lenders and vendors that your company is financially responsible and capable of repaying debts on time.
Key Takeaways
- In order to establish your business credit, you must register for an EIN and DUNS number.
- You may also consider opening separate bank accounts for your business and personal funds.
- Try using business credit cards and establishing tradelines with suppliers and vendors to get more information included on your credit report.
- Maintain healthy credit habits, such as paying bills on time, keeping low credit utilization, and limiting new credit applications.
What is a Business Credit Score?
Similar to a personal credit score, a business credit score is used to indicate your business’ creditworthiness to potential lenders. Lenders and vendors may look at your business’ credit score to determine you likelihood of paying off your bills on-time and your probability of defaulting.
Like a personal credit score, a business credit score is based on information pulled from a credit report. Your business credit report will contain information about the specifics of your company—like the size and ownership—as well as payment history.
There a re many credit reporting agencies like Dun & Bradstreet, Equifax, and Experian, which use different scoring systems and may rely on different analytics and information to populate credit reports.
Dun & Bradstreet
Dun & Bradstreet is a data analytics company and credit reporting agency. They have many different scores and ratings that are meant to measure metrics like financial health, delinquency, and payment history.
The PAYDEX score, which is scored from 1 to 100, is similar to a FICO score. It’s meant to meant to demonstrate a company’s reliability to lenders. A higher score is considered lower risk while a lower score is considered higher risk.
Equifax
Equifax is a credit reporting agency that produces personal credit reports as well. The produce business credit reports containing information about a business’ credit accounts, 12-month payment trend, and more.
Experian
Experian is a credit reporting agency and an information services company. They produce personal credit reports as well as business credit reports. These business credit reports will contain many details such as your Experian Business Credit Score, trade credit information, and corporate registration.
Experian calculates the Experian Business Score by weighing factors like payment history and credit utilization and considering demographics like business size.
Establishing a Business Credit Score
In order to set up a business credit score, you’ll first need to make sure you have an employer identification number (EIN), which is a tax identification number for businesses. You can apply for an EIN through the IRS website or via mail.
You’ll want to apply for a Data Universal Numbering System (DUNS) number through Dun & Bradstreet, too. This is referred to as a DUNS number. This number establishes that your company is a business to banks, financial institutions, and lenders.
Tip
You’ll also want to consider opening a separate business bank account to separate your personal and business funds. This can help limit your personal liability.
Tips For Increasing Your Business Credit Score
After you’ve opened a bank account and have both a DUNS number and an EIN, you’ll want to work on building your credit score and history. You’ll want focus on making debt payments on-time and in full, keeping your credit utilization ratio low, and limiting new credit applications.
Additionally, you’ll want to make sure that when a business, bank, or financial institution extends you credit, they also report that credit line to the credit reporting agencies.
Setting up tradelines or a business credit cards are ways to get more payment information on your credit report, so you can show lenders that you’re good at handling credit.
Tradelines
You may try to establish tradelines with some of your vendors and suppliers. A tradeline is a line of credit that suppliers or other companies extend to small businesses—they usually have payment terms like Net 30, 60, or 90, which means that your business has 30, 60, or 90 days, respectively, to pay it back.
Important
Note that not all companies will report tradelines to credit reporting agencies, so you may need to seek out other businesses that do so or report them to Dun & Bradstreet yourself.
Business Credit Cards
Another option is to apply for a business credit card, but some banks and financial institutions will also evaluate your personal credit score when determining eligibility. Therefore, you may need either a good or excellent credit score to qualify. Additionally, you’ll want to check whether the business credit card requires a personal guarantee, which means that you’re on the hook for debt if the business can’t pay.
Business credit cards can be good tool to boost your credit score, as many major business credit card issuers will report your payment history and information to the business credit bureaus.
The Bottom Line
To begin building your business credit, make sure to separate your business and personal bank accounts. You’ll then want to sign-up for EIN and DUNS number.
By strategically using business credit cards and establishing tradelines with vendors, you’ll add more information to your credit report and can boost your business credit score. Paying your bills on time and in full and having a low credit utilization ratio will help strengthen your creditworthiness over time.
