How to Build Business Credit and Raise Your Credit
A strong business credit profile will help you qualify for bank loans and funding sources with competitive interest rates.
Personal and business credit is vital for a business, and it is not uncommon for lenders to require personal credit checks for small business loans. Here's how you can build and raise your business credit.
Establish Your Business
If you want business credit, you must legally establish your business as a sole proprietorship, corporation, partnership, or limited liability company. Having an established business with a legal name and an established business phone number will give credibility to vendors and the government. Whether you operate as a sole proprietor or a corporation, you'll need to register your business with the appropriate government entities to create a business credit profile. Then you can apply for a federal tax identification number, also known as an employer identification number, or EIN, which will allow you to begin building business credit.
Open a Business Bank Account
A business bank account is needed to start building up a credit history. A business bank account is a dedicated bank account that you should use for business expenses and transactions only. It is meant to keep your personal and business finances separate, both for building credit history and making taxes easier at the end of your fiscal quarter or year.
Obtain a Business Credit Card
A small business credit card and paying the balance every month are excellent ways to build business credit. Many credit cards earn cashback and points-based rewards. If you have an excellent personal credit score―at least 670―then you may qualify for some of the best business credit cards for your business. Many credit cards will look at your personal credit if you have no business credit history.
Apply for a Business DUNS Number
Dun & Bradstreet is probably the most well-known among the business credit bureaus you need to get connected with. If you want to build business credit, opening a credit file with this agency is good. To do that, you will need to register for a DUNS—a Data Universal Number System. The DUNS system is a numerical identification process for business entities. When you apply for one, you'll receive a unique nine-digit code. The process is entirely free and can be completed on the Dun & Bradstreet website, but it takes up to 30 days to receive your DUNS number.
Make Payments to Creditors on Time or Early
Although each credit bureau uses slightly different methods of crunching business credit scores, they all consider your history of paying creditors. To ensure a good score, make sure your payments are on time or, even better, early. A long credit history tends to weigh favorably, so the sooner you start establishing business credit, the better.
Focus on Credit Utilization
Much like personal credit cards, business credit cards have recommended usage so you can maximize your credit score. It is recommended that business owners use no more than 30% of their total credit limit, and it will prove you're financially responsible.
Borrow from Lenders that Report to Credit Bureaus
Small-business loans can boost business credit if payments are on time and the lender reports to a business credit bureau. So if you're intent on building business credit, ask lenders whether they report to credit bureaus before taking out a small-business loan. Banks typically report to credit bureaus, but if you have poor or limited credit, you probably won't qualify for a bank loan.
Monitor Your Credit
Diligently monitoring your business credit history can help you monitor your progress and spot mistakes. If you find an error, be sure to file a dispute with the credit bureau reporting the error. Regularly check your credit reports and scores with more than one major credit reporting agency to find out whether your accounts are helping your scores, and if not, consider adding additional credit references.
Why is this important? Monitoring your business credit can alert you to problems to investigate further.
Benefits of Having Good Business Credit
Having good personal credit is similar to having good business credit. A strong business credit score can provide several benefits to a small business, including accessing funding for growth or new equipment, better payment terms, and lower interest rates.
Positioning your company for more favorable payment terms with new vendors and suppliers
Reduce the number of times you need to prepay for products or services purchased
Allow you to obtain better interest rates and credit terms from lenders and banks.
Once you have established good business credit, be sure to monitor and protect it, just as you do with your personal credit.
PROFIT Bank aims to provide each business member with an All-in-One bank account that simplifies accounting so you can make better financial decisions. We offer free banking and bookkeeping for small businesses. While we do not provide credit, we can show you the pertinent details in your financial statements. We can auto-generate your profit and loss, balance sheet, and cash flow statements to help you track profitability. These statements are essential indicators for the primary requirements in building your business credit.