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Most new — and many existing — business owners aim to build their business credit scores. They also look for ways to get credit, deal with start-up costs or expand their business. Incidentally, there is a direct link between the these goals because how well you manage the credit you receive directly affects your business’s credit score. With a strong business credit history, the path to financing in the future may become simpler and more cost-effective.

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KEY TAKEAWAYS
  • Register your business.
  • Select vendors who report payments to business credit bureaus.
  • Get a business credit card or a business line of credit.
  • Make your payments on time and keep your credit utilization ratio low.

What Is Business Credit and How Does It Work?

Business credit operates similarly to personal credit, influencing your company's creditworthiness based on how you manage it. Good business credit unlocks better interest rates and a broader range of financing options, making it essential for both new and established business owners. Even if you don't currently require additional capital, building your business credit ensures you're prepared for future needs.

What Is a Business Credit Score?

A business credit score is a numerical representation of your business's creditworthiness, ranging from 0 to 100. Unlike personal FICO scores, which range from 300 to 850, a business credit score focuses solely on your business accounts. Factors affecting your score include:

  • Payment history
  • Credit utilization ratio
  • Existing liens
  • Unfavorable court judgments
  • Bankruptcy rulings
  • Age of oldest financial account

Credit utilization ratio refers to the percentage of credit you are using compared to the total credit available to you. Aim to keep your credit utilization ratio below 30% for optimal scoring. To access your business credit report, you'll need to pay a fee to the three major business credit bureaus in the U.S.: Dun & Bradstreet, Experian and Equifax.

How to Establish Business Credit

Establishing business credit can be fairly straightforward if you know what to do.

1

Register your business

Choose a legal structure like an LLC or corporation over a sole proprietorship to keep your business and personal credit separate.

2

Obtain an Employer Identification Number (EIN)

Apply for an EIN from the IRS, which you'll use when applying for business credit and opening your bank account.

3

Open a business bank account and get a business phone number

These are foundational steps that help separate your business finances from your personal finances.

4

Contact credit bureaus

Establish a business credit file by reaching out to the major credit bureaus: Dun & Bradstreet, Experian and Equifax.

5

Select reporting vendors

Choose vendors that offer net-30 or net-60 credit terms and ensure they report your payment history to the credit bureaus.

6

Obtain business credit

Apply for a business credit card or line of credit to start building your credit profile. If you're a new business, consider a secured credit card.

7

Make timely payments

Always pay your bills on time, as late payments will negatively affect your business credit score.

8

Monitor your credit

Regularly review your business credit reports to spot any errors and keep track of your score.

Ways to Build Business Credit

One way to build your business credit history is by obtaining credit for your business and repaying it on time. It's also important to keep your credit utilization ratio in check. While getting a business loan is an option, you may also consider building your business credit by getting a business credit card or a business line of credit. Both come with predetermined credit limits and require that you make at least minimum monthly payments. Both report your payment history to business credit bureaus.

Get a Business Credit Card

You may build your business credit by making your business credit card payments on time, as these would reflect on your business credit reports.

A business credit card gives you interest-free days on purchases, meaning that as long as you pay the entire outstanding amount before the end of each billing cycle, you pay no interest. Most business credit card providers let you get additional employee cards at no extra cost. Depending on the card you get, you might benefit from high reward rates for spending across business-oriented categories such as office supplies and travel.

Business credit cards tend to simplify tracking expenses by letting you integrate your accounts with your existing bookkeeping software. Some even offer detailed category-based spending reports.

Some business cards come with no annual fees. Cards that charge annual fees typically offer higher cash back or reward earn rates as well as additional benefits such as trip cancellation and interruption insurance, auto rental collision damage waiver, lost luggage insurance, airport lounge access and priority boarding.

Get a Business Line of Credit

Issuers of business lines of credit report your payment histories to business credit bureaus, giving you the means to build business credit. Business lines of credit may be unsecured or secured, and you may expect higher credit limits when you look for secured alternatives.

A business line of credit comes with a predetermined draw period. During this time, you can access available funds in your line as often as you want. Like credit cards, the money you repay becomes available for borrowing again.

With most business lines of credit, you may choose to make interest-only payments during the draw period. Once the draw period ends, you are required to repay any outstanding amount through an installment payment plan that usually stretches from three to five years.

A business line of credit comes in handy when you need to pay billers who do not accept card payments. However, unlike credit cards, business lines of credit do not offer grace periods where interest does not accrue. Additional features and perks are hard to come by as well.

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MONEYGEEK EXPERT TIP

If you decide a business line of credit is the best financial solution for you, be sure to prioritize paying back your loan in a responsible manner. Making late payments or defaulting on the loan could destroy your business's credit score and make lending in the future much more difficult. — Brett Holzhauer

Expert Advice on How to Build Business Credit

  1. What is a good business credit score?
  2. How often should I check my business credit profile?
  3. How can I improve my business credit profile?
  4. What is your best advice for someone who wants to create a strong business credit profile?
Jeremiah Nelson, Ph.D.
Jeremiah Nelson, Ph.D.

Assistant Professor of Management at Catawba College

Paula Englis
Paula Englis

Professor of Management and Academic Director, Entrepreneurship Program at Berry College

Gladys Jadagu
Gladys Jadagu

Assistant Professor of Business

Erick Chang, Ph.D.
Erick Chang, Ph.D.

Associate Professor of Management at Arkansas State University

Barbara Schreihans
Barbara Schreihans

Founder and Chief Executive Officer of Your Tax Coach

Next Steps

Now that you know how to build a business credit score and the importance of doing so, get the type of business credit that you feel works best for you. Whether you choose a business credit card or a business line of credit, take time to thoroughly compare your options.

Frequently Asked Questions

This section answers other commonly asked questions about how business credit works.

About Rajiv Baniwal


Rajiv Baniwal headshot

Rajiv Baniwal is a journalist who has been covering financial topics for over 15 years. Meticulous in his research, he provides accurate and up-to-date information. His expertise includes mortgages, loans, credit cards, insurance and international money transfers.


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