Building strong business credit is important for many small business owners. It can open the door to better financing options, lower interest rates and the potential for growth. But boosting your score can be a long process.

Business owners reviewing business credit on a laptop

Whether you’re just starting out or you want to give your business a lift, here’s some tips to get started building business credit quickly.

How Do You Build Business Credit Fast?

A good business credit score doesn’t happen overnight. Just like with personal credit, it takes time and effort to build. Getting started as soon as possible and establishing a solid foundation can help smooth the way. Here are six ways to get started on building business credit fast.

1. Get an Employer Identification Number

An Employer Identification Number (EIN) is basically a Social Security number for your business. You’ll need one to establish your business as a separate entity and start building business credit. (Keep in mind that if you’re a sole proprietor, your business isn’t a separate legal entity.) Your EIN allows you to file your business’s tax returns, open a business bank account and build business credit. You can apply for an EIN through the IRS for free.

2. Open a Business Bank Account

Opening a business bank account is the next step in establishing your business’s financial identity. It helps further the separation of business finances from your personal finances.

Many business lenders will also require you to have a business bank account. Whether it’s a business credit card, business term loan or business line of credit, you will often need a business bank account to get approved. Getting business financing and managing it well can help you establish a good business credit history.

3. Establish Your Credit Profiles

Business credit is tracked and reported by the major business credit bureaus such as:

  • Dun & Bradstreet.
  • Experian Business.
  • Equifax Business.
  • FICO Small Business Scoring Service.

While your business’s credit history may automatically be reported, you should check to make sure you have a complete profile with each of the business credit reporting agencies. For Dun & Bradstreet, you may also need to apply for a DUNS number. A DUNS number is a unique number that identifies your business credit profile through Dun & Bradstreet.

4. Establish Tradelines or Get Credit From a Lender Who Reports to the Business Credit Bureaus.

To build business credit history, it can help to open some credit accounts. These accounts can help you build business credit history. Consider opening tradelines with vendors or getting some type of credit from a business lender, such as a small business line of credit or small business loan.

When opening these accounts, be sure that the lender reports to the business credit bureaus. This will help ensure that these accounts will go toward helping build credit history.

5. Maintain Good Credit Habits

Just like with personal credit, maintaining good business credit habits can help you build your business credit history. Some of the things that determine your personal credit score and your business credit score are the same. But there are few factors that contribute to your business credit score that are different from personal credit.

Payment history. Making on-time payments can help build a positive business credit history.

Credit utilization. Limiting the amount you borrow and the amount of your credit limits you utilize can help keep your credit utilization low. This can be beneficial to your business credit.

Age and mix of credit. Older accounts and different types of borrowing can show your ability to manage your businesses finances.

Age of your business. New businesses are often more likely to fail than more established businesses. This is reflected in your business’s credit rating.

Risk. If you operate in a risky industry, your company’s credit could be impacted.

6. Monitor Your Business Credit Reports

Now that you have a separate business entity, you’ve established your business credit files, and you’ve been maintaining good borrowing habits, you need to monitor your progress. When reviewing your business credit reports, keep an eye out for errors or inconsistencies on your credit reports and identify areas where you can improve.

You can check your business credit reports with any of the business credit bureaus. Keep in mind that each bureau has a unique system and your scores can look different at each one.

How Does Business Credit Work?

Business credit works similarly to personal credit — but for your business instead of you as an individual. Your company’s credit determines the creditworthiness of your business and is separate from your personal credit score (unless it is a sole proprietorship).

Business credit is used by lenders, suppliers and even investors to determine a business’s reliability in financial matters. Keep in mind that unlike personal credit reports, business credit reports are generally available to the public. Though they typically need a real business reason and may need to pay a fee to access the information, your credit information could be readily available.

Why Is It Important to Establish Business Credit?

Establishing business credit is important because it can help your business grow, protect your personal finances and offer you more financial flexibility.

Get better financing options. A good business credit score can help you get approved for better financing options. You can get higher credit limits or bigger loan amounts along with lower interest rates and better terms from vendors and small business credit providers.

Protect your personal finances. Establishing business credit separates your personal and business finances. Small business owners that don’t have established business credit may rely on personal loans or personal credit cards to fund their business — which can mess up their personal credit history if business takes a turn.

Build credibility. A strong business credit profile can help build your company’s credibility. This can attract investors and can be important for securing large-scale financing and partnerships in the future.

 

This content is for educational and informational purposes only, and is not intended as financial, investment or legal advice.

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