How to Start a Business Credit

Building business credit is essential for any business looking to establish a strong financial foundation. Business credit allows you to borrow money, secure loans, and finance operations without relying on your personal credit. It can also help you build relationships with suppliers, gain better financing terms, and protect your personal credit score. Whether you’re a startup or an established small business, learning how to start a business credit is crucial for long-term success.

What is Business Credit?

Business credit is a record of a company’s financial history and ability to repay debts, similar to personal credit scores but specific to business operations. Business credit is tied to your company’s Employer Identification Number (EIN) rather than your Social Security number. Lenders, suppliers, and credit agencies use your business credit score to assess your company’s risk level and determine whether they will extend credit to you.

Benefits of Business Credit:

• Separation of Personal and Business Finances: Building business credit keeps your personal finances and liabilities separate from your business activities.
• Better Financing Terms: Good business credit may result in lower interest rates, larger loan amounts, and more favorable payment terms.
• Increased Credibility: Vendors and suppliers may be more willing to work with businesses that have a solid credit history.

How to Start a Business Credit

1. Establish Your Business as a Legal Entity

The first step in building business credit is to legally establish your business. Sole proprietorships and partnerships may struggle to build credit independently, as they are typically tied to personal credit. To ensure your business is distinct from your personal finances, form a legal entity such as:

• Limited Liability Company (LLC)
• Corporation (C-Corp or S-Corp)

Once your business structure is in place, you’ll want to register it with the appropriate state and federal agencies.

2. Obtain an Employer Identification Number (EIN)

An Employer Identification Number (EIN) is a unique identifier issued by the Internal Revenue Service (IRS) for your business. Think of it as the equivalent of a Social Security number for your company. An EIN is required to open a business bank account, file business taxes, and apply for business credit. You can apply for an EIN for free through the IRS website.

3. Open a Business Bank Account

Opening a business bank account is a key step in how to start a business credit process. It helps separate your business finances from your personal finances, which is crucial for building a distinct credit profile. Lenders often require a business bank account when reviewing your business for loans or credit. A business bank account also makes tracking cash flow, income, and expenses easier for tax purposes.

4. Get a Business Phone Number and Address

A physical business address (even if it’s a virtual office) and a dedicated business phone number can boost your company’s credibility. Lenders and credit agencies look for businesses that appear legitimate and professional. Having a business phone line and address ensures that your business is taken seriously by creditors, suppliers, and customers.

5. Apply for a D-U-N-S Number

A D-U-N-S Number is a unique nine-digit identifier assigned to your business by Dun & Bradstreet, a major business credit reporting agency. This number is critical for building your business credit profile and allows Dun & Bradstreet to track your business’s financial transactions. Many suppliers and lenders use Dun & Bradstreet’s credit reports to assess the risk of doing business with your company.

How to start a business credit with the D-U-N-S Number? You can apply for a free D-U-N-S Number on the Dun & Bradstreet website.

6. Open Trade Credit Accounts with Vendors

Working with vendors and suppliers that report payments to business credit bureaus is an effective way to start building business credit. Many vendors offer trade credit—an arrangement where you receive goods or services and pay for them later (usually in 30 to 60 days). Paying on time (or early) helps build a positive credit history for your business.

Start by working with vendors that report payments to the business credit bureaus, such as:

• Uline
• Quill
• Grainger

Make sure to pay invoices on time or ahead of schedule to boost your business credit profile.

7. Apply for a Business Credit Card

A business credit card is a straightforward way to build credit while providing easy access to capital for everyday expenses. Many banks and financial institutions offer business credit cards that can be used for a variety of business-related purchases. By using your business credit card responsibly and paying off balances in full each month, you can improve your credit score over time.

Popular business credit cards to consider include:

• Chase Ink Business Preferred®
• American Express® Business Gold Card
• Capital One® Spark® Classic for Business

If you are learning how to start a business credit, you need to ensure that your credit card provider reports your payments to the major business credit bureaus: Dun & Bradstreet, Experian, and Equifax.

8. Monitor Your Business Credit Report

Regularly monitoring your business credit report is crucial to ensure accuracy and to track your progress. Just as you would with your personal credit report, check your business credit report for any errors or discrepancies. Each of the major business credit reporting agencies offers access to your business credit report:

• Dun & Bradstreet: Through the D&B Credit Monitor.
• Experian: Via Experian Business.
• Equifax: Through Equifax Business Credit Reports.

Correct any mistakes you find as errors could negatively affect your business credit score and limit your ability to secure credit. If that’ll happen, and you will want to open another venture, then you might encounter additional difficulties on how to start a business credit again.

9. Maintain Good Payment Habits

One of the most important factors in building business credit is making timely payments. Late payments can harm your business credit score and may result in higher interest rates or denial of future credit. Strive to pay your bills early or on time to build a solid reputation with vendors and creditors.

How Business Credit is Scored

Unlike personal credit scores, which typically range from 300 to 850, business credit scores generally range from 0 to 100. The main factors that impact your business credit score include:

• Payment History: Timely payments are one of the biggest determinants of your business credit score.
• Credit Utilization: Keep your credit utilization low (i.e., don’t max out your business credit cards) to maintain a healthy score.
• Length of Credit History: The longer your credit history, the better. Lenders prefer to see a track record of consistent credit use.
• Public Records: Liens, bankruptcies, and other public financial records can negatively impact your business credit score.

Conclusion

How to start a business credit is essential question for starting the business. You need to learn a lot about separating your personal and business finances, securing financing, and growing your business. By following the steps outlined above—establishing a legal entity, opening a business bank account, obtaining an EIN and D-U-N-S Number, using trade credit, and paying bills on time—you can start building strong business credit. Once established, good business credit opens doors to better financing options and opportunities for your business’s growth and success.