Business Tradelines: What They Are and How They Can Help You Build Credit

In business, credit is crucial. It can make or break your ability to grow and sustain your company. For many entrepreneurs, understanding and effectively managing your business credit score is key to securing financing, negotiating favorable terms with suppliers, and maintaining a healthy cash flow.

One fundamental aspect of building strong business credit is the use of business tradelines. So let’s delve into what business tradelines are, why they are important, and how they can help you build business credit.

What are business tradelines?

A business tradeline refers to any credit account listed on a business credit report. These are different than a general tradeline, which is a record of activity from any type of account (personal or business), including term loans or lines of credit.

Specifically, business tradelines are reported to business credit bureaus and play a significant role in determining your business credit score. Business tradelines are the building blocks of your business credit profile. They provide a comprehensive view of how your business manages its financial obligations and interacts with creditors. Having a number of well-maintained tradelines contributes to a strong business credit profile.

How can business tradelines help me build credit?

Business tradelines can help you build credit history by increasing your visibility in front of credit reporting agencies. When you open a tradeline with a lender or vendor, make sure they report your payments to credit reporting agencies. This will ensure that on-time payments you make go toward building your commercial credit profile. Not all tradelines report to the major credit reporting agencies, so be sure to ask before you apply.

Using tradelines for credit-building can help prove that you can manage your business needs and also show future lenders and suppliers that your small business can be trusted to repay. Building a good tradeline history can make it easier to get approved with a credit check for more funding, or qualify for better financing terms in the future.

Why are business tradelines important?

Business tradelines are important because, in addition to visibility, they can provide another way to demonstrate creditworthiness to lenders, suppliers and credit agencies. Here are a few more reasons why business tradelines are important:

Creditworthiness. Tradelines are vendor credit accounts that reflect your business’s creditworthiness. Lenders and creditors use the information in your tradelines to assess the risk of extending credit to your business. Just like a personal credit score, a strong history of timely payments can enhance your business credit score and make it easier to receive offers from potential lenders. Having bad credit will make approval for tradelines much more difficult.

Financing opportunities. With a strong business credit profile, your company is more likely to qualify for small business loans, credit lines and other forms of business financing. This access to capital can be vital for expansion, managing cash flow, or investing in new opportunities.

Better terms and conditions. A solid business credit profile can help you negotiate better terms with suppliers and vendors. This might include longer payment terms, higher credit limits or lower interest rates, all of which can improve your cash flow and financial flexibility.

Business reputation. A good credit profile enhances your business’s reputation with potential partners, investors and clients. It demonstrates financial stability and reliability, which can be a significant advantage in competitive markets.

How do business tradelines affect my credit?

Business tradelines that are reported to the credit bureaus directly impact your business credit score — a numerical representation of your creditworthiness. The major business credit bureaus, including Dun & Bradstreet, Experian Business and Equifax Business, use the information in your tradelines to calculate your credit score. Here’s how tradelines can affect your credit:

Payment history. The most critical factor in your business credit score is your payment history. Consistently paying your bills on time builds positive credit, while late payments can significantly harm your score.

Credit utilization. This is the ratio of your current credit balances to your credit limits. Lower credit utilization rates are better for your credit score, indicating that you are not over-relying on credit.

Age of accounts. Older tradelines contribute more positively to your credit score as they reflect a longer history of credit management.

Credit mix. A diverse mix of credit types (e.g., loans, credit lines, business credit cards and vendor accounts) can enhance your credit score by demonstrating your ability to manage different types of credit.

What’s the difference between a vendor tradeline and a financial tradeline?

Business tradelines can be broadly categorized into vendor tradelines and financial tradelines, with the main difference being:

Vendor tradelines. These are credit accounts established with suppliers and vendors. They often involve payment terms such as “Net 30” or “Net 60,” which means you have 30 or 60 days to pay the invoice after receiving goods or services. Working with Net 60 or Net 30 vendors can be an excellent way to build business credit without needing to secure loans or credit lines, assuming they report to the credit bureaus.

Financial tradelines. These include traditional financial products such as business credit cards, loans and lines of credit issued by banks or other financial institutions. Financial tradelines typically have more stringent qualification criteria but can usually offer higher credit limits and possibly a more significant impact on your credit score.

What does Net 30 and Net 60 mean?

The terms “Net 30” and “Net 60” are common trade credit terms that mean a buyer has 30 or 60 days to pay their invoice in full. Also commonly called “net terms,” they refer to the amount of time a business has to ‘buy now, pay later’ invoice terms with interest-free financing if paid on time.

Net 30 accounts give a business a 30-day payment window from the invoice date. This term is widely used and helps businesses manage short-term cash flow needs.

Net 60 means payment is due within 60 days from the invoice date. This longer payment term can provide additional flexibility for managing cash flow but might not be offered to a new business or startup.

Understanding any other vendor-specific terms beyond these is also essential for managing your business’s finances effectively and maintaining positive relationships with suppliers.

How do I establish a business tradeline?

Establishing business tradelines involves several steps, including:

1. Incorporate your business. Ensure your business is legally organized as an LLC, corporation, or similar structure. This creates a separate legal entity and helps establish a business credit profile.
2. Obtain an Employer Identification Number (EIN). An EIN from the IRS is necessary for tax purposes and helps separate your business credit from your personal credit.
3. Open a business bank account. A business bank account is essential for managing your finances and building a financial history.
4. Register with business credit bureaus. Ensure your business is registered with major business credit bureaus like Dun & Bradstreet, Experian Business, and Equifax Business.
5. Apply for vendor accounts. Start with suppliers and vendors who report to business credit bureaus. Apply for Net 30 or Net 60 accounts and make timely payments to build positive tradelines.
6. Consider using business credit cards. You may want to apply for business credit cards and use them responsibly. Make sure to keep balances low and pay off the cards regularly.
7. Monitor your credit reports. Regularly check your business credit reports for accuracy and promptly address any discrepancies.

Should I buy tradelines?

Buying tradelines involves paying for an established account to be added to your credit report, a practice more common in personal credit repair. While it might seem like a quick way to boost your credit score, it comes with significant risks:

Ethical and legal concerns. Buying tradelines can be seen as deceptive by lenders and might violate terms of service with credit bureaus or other laws. This practice can lead to severe consequences if discovered.

It’s a short-term solution. Purchased tradelines may provide a temporary boost to your credit score, but they do not address underlying financial habits or improve your business’s creditworthiness or business funding in a sustainable way.

Potential scams. The market for tradelines is rife with scams and unscrupulous providers. You risk losing money or damaging your credit profile if you deal with disreputable sources.

Instead of buying tradelines, consider building genuine credit relationships and maintaining good financial practices.

How many business tradelines do I need?

The number of tradelines needed to build strong business credit can vary, but a good rule of thumb is to aim for at least five active and positive tradelines. Here’s why:

Diverse credit mix. Multiple tradelines show that your business can handle various types of credit, enhancing your credit profile’s robustness.

Credit utilization. More tradelines provide more available credit, which can help lower your overall credit utilization ratio. This in turn can be positive for your credit score.

Redundancy. Having multiple tradelines reduces the impact of any single account reporting negatively, providing a buffer against potential credit issues.

The Bottom Line

Business tradelines can play a crucial role in building a strong business credit profile, helping you establish creditworthiness, secure financing, and negotiate better terms with suppliers. By understanding what tradelines are, how they work, and how to effectively manage them, you can set your business on a path to financial success. Remember, building business credit is a marathon, not a sprint. Focus on establishing genuine credit relationships, maintaining good financial practices, and monitoring your credit profile regularly to achieve long-term benefits.

Small business owners sound off: How have business tradelines with vendors helped you build business credit?

Top tips for small business owners who want to build credit with business tradelines.

“For small businesses, tradelines are a big part of your business’s credit story. At Equifax, we believe that by effectively managing your tradelines, companies can proactively manage their credit profiles and build a foundation for long-term financial success. As a business owner, the best things you can do to maintain and build good credit include:

• Prioritize Timely Payments: Every on-time payment demonstrates reliability and financial responsibility.
• Understand What’s on Your Report: Similar to traditional loans and credit cards, business tradelines can also be found on your credit report.
• Build a Diverse Credit Portfolio: Just like personal credit, a mix of different types of tradelines can positively impact your score.
• Manage Your Credit Utilization: Keep your credit utilization low, to help show you’re not overly reliant on credit
• Think Long-Term: Maintaining older, well-managed accounts shows a history of financial responsibility.

Equifax, as a leader in business credit insights, recognizes the direct connection between these practices and a business’s ability to secure financing and thrive.”

David Adams, Head of Commercial Product Marketing
Equifax

Establishing trust to help facilitate bigger orders and exclusive contracts

“My business credit has changed completely after starting to build tradelines with vendors. In the beginning, opening accounts with reliable suppliers made it possible for my business to demonstrate regularity and consistency in terms of its payments.

This is why I was able to develop a strong credit profile through numerous transactions with Chinese suppliers. Furthermore, on-time payments often resulted in better credit terms and discounts that helped with cash flow challenges.

It’s not just about the sales; these relationships establish trust with vendors, facilitating negotiations for bigger orders or exclusive contracts. Having a strong business credit score also opened doors to additional financing options, which further fueled growth. This foundation became crucial when scaling operations.”

Brandon Hartman, Founder
BeyWarehouse