Building Business Credit: Strategies for Establishing and Strengthening Your Business’s Creditworthiness

Building business credit isn’t just about getting loans and credit cards for your business. It also enhances your business’ reputation. Having a good business credit score can help you save money on interest rates, negotiate better terms with vendors and suppliers, and even attract more customers and investors. 

But how do you build business credit from scratch? How do you improve your existing business credit score? In this post, we’ll share some strategies and tips to help you achieve your business credit goals.

7 Strategies for Establishing Your Business Credit from Scratch

If you are starting a new business or have not yet established a business credit profile, here are seven steps to follow to lay the foundation for your future creditworthiness:

Step #1 Choose a Business Name and Establish a Legitimate Business Address

The first step is to choose a business name that reflects your brand identity (and that’s legal to use). It’s wise to have a trademark attorney during this process who can inform you if a business name is available or if another brand already owns it.

Next, you must establish a legitimate, physical business address to receive mail and conduct your operations. You should avoid using your home address, and PO boxes aren’t considered valid by most lenders and credit bureaus. 

If you run an online business from home (like an international dropshipping service, for example) and don’t have a separate office, the best advice is to hire a virtual address service that provides a professional street mailing address and other benefits.

Step #2 Choose the Right Business Structure and Incorporate Your Business

Building business credit is essential for establishing and strengthening your business’s creditworthiness. However, it’s not just about improving financial opportunities and accessing favorable loans and credit lines. It also plays a vital role in safeguarding your assets from potential civil lawsuits.

In this context, the second step to building business credit is to choose the right business structure for your company and register it as a legal business entity. This step will help you protect your personal assets from your business liabilities and create a clear distinction between your personal and business credit. 

You can choose from different types of business structures, such as:

• Sole proprietorship
• Limited liability company (LLC)
• Partnership
• S corporation
• C corporation

Each structure has pros and cons and is taxed differently, so you should consult with a business attorney or a tax professional before deciding which is right for your business goals.

Once you’ve chosen your business structure, then it’s time to register the business with your state and obtain any required licenses and permits.

While building business credit, incorporating your business allows you to clearly separate your personal and business finances. This can protect your personal assets in the event of legal issues. 

Step #3 Get Your Business Tax ID or Federal Employer ID Number (EIN)

The third step is getting your federal Employer ID Number (EIN) from the IRS. This unique nine-digit number identifies your business for tax purposes and allows you to:

• Apply for business loans and credit cards
• Open a bank account
• File tax returns
• Hire employees

You can apply for an EIN online, or you can fill out and submit IRS Form SS-4 by fax or mail.

Step #4 Open a Business Bank Account

Use your EIN and business address to open a business bank account in your business name. By separating your personal finances from your business’ finances, you can better track your income and expenses and manage your cash flow. 

It’s also essential for building business credit. It shows lenders and credit bureaus that you’re running your business professionally. You also have a choice of hiring a financial consultant to review, thoroughly assess, and provide guidance on building your business credit.

When you open a business bank account, choose a bank that reports account activity to major business credit bureaus: Dun & Bradstreet (D&B), Experian Business, and Equifax Business. This will help you establish a positive payment history on your business credit report.

Step #5 Get a Business Credit Card

With your EIN, you can also apply for a starter business credit card. 

Why? A credit card will help you access working capital, cover unexpected expenses, earn rewards, build a credit history, and improve your credit score.

Step #6 Apply for a Free DUNS Number

A DUNS number is a 9-digit business ID number provided by Dun & Bradstreet (D&B). DUNS stands for Data Universal Numbering System, and the unique DUNS number identifies your business in the D&B database and allows you to create a business credit profile with them. Having a DUNS number is required for applying for government contracts, grants, and loans, as well as for doing business with ‌large corporations and suppliers.

Step #7 Establish Tradelines or Trade Credit with Your Suppliers

The final step is to establish tradelines with your suppliers and vendors. Also known as vendor credit, supplier credit, or net terms, tradelines are credit accounts between a business and a vendor or a financial institution. 

They let you ‌buy goods or services from suppliers on credit and pay for them later, usually within 30 to 90 days.

4 Tips to Strengthen Your Business Credit Score

Once you’ve established your business credit profile, you’ll need to strengthen your business credit score and maintain it at a high level. Follow these six tips:

Tip #1 Pay Creditors on Time (Early if Possible) and in Full

The most important tip to boost your credit score is to pay your creditors on time and in full every time. Doing this shows lenders and credit bureaus that you’re responsible and reliable with your obligations. It also helps you avoid late fees, penalties, and interest charges on your credit report.

Tip #2 Establish Credit with Vendors or Suppliers Who Report

It’s not enough to establish tradelines. You also want to ensure your vendors or suppliers report your payment activity to the major business credit bureaus: Dun & Bradstreet, Experian Business, and Equifax Business.

The fastest way to find out which vendors or suppliers report to the business credit bureaus is to check Credit Suite’s comprehensive database of vetted suppliers. Feel free to call Credit Suite at (877) 600-2487 for a free consultation or if you have any questions regarding their vetted supplier database.

Tip #3 Keep Track of Your Business Credit Reports

Keeping track of your business credit reports with any business credit bureau is just as important as tracking your personal credit scores. It helps you:

• Track your credit history
• Check your credit score
• Verify the accuracy of the information
• Spot any errors or discrepancies
• Identify any fraudulent or unauthorized activity
• Dispute any inaccuracies or negative items

As a business owner, you can get free access to your Experian Business and Equifax Business reports through Nav.com. Alternatively, you can access your business credit reports from the business credit bureaus online for a fee.

Tip #4 Keep Your Credit Utilization Low

Credit utilization refers to the percentage of your available credit that you’re using at any given time. For example, if you have a vendor credit limit of $20,000 and a $6,000 balance, your credit utilization ratio is 30%.

$6,000 / $20,000 = 0.30 or 30%

Like payment histories, credit utilization can have a significant impact on your business credit score. 

Keeping your credit utilization low shows lenders that you aren’t overextending yourself and that you have enough cash flow to pay your bills on time. The lower your credit utilization, the better. When in doubt, keep it below 30%.

The Bottom Line

Building business credit isn’t a one-time event. It’s an ongoing process that requires planning, strategy, and continuous action. By following the steps and tips we outlined in this post, you can establish and strengthen your business credit profile and score.

Having a good credit score with business credit reporting agencies will improve your business’s credit ratings, giving your business access to better lines of credit with higher credit limits. 

Making on-time payments, keeping your credit utilization low, and managing your business debt will also give you access to different types of financing options from new potential lenders with favorable terms to help you cover business expenses.

Making late payments will go into your business credit history, resulting in a bad credit score that’ll reduce your chances of approval for a business loan, making your business less fundable.

If you need more help or guidance on building business credit, you can check out Credit Suite’s business credit solutions to help you access funding, improve your Fundability, and grow your business.