The Definitive Guide to Building Business Credit

Brendan Harkness

Brendan Harkness

Updated Sep 13, 2016

Starting your own business can be extremely costly.  Besides solving financing problems, business owners also must traverse a maze that keeps the private aspect of the company separate from the public.

For instance, when entrepreneurs require a line of credit, how do business and personal credit affect one another? An equally apt question is, how does a business owner establish credit that is separate from personal credit? Let’s examine the steps and options.

What Is Business Credit?

Before you can start building business credit, you must understand the basics. The business credit bureaus gather information about trade credit transactions in order to create your business credit report using your business name, address, and your federal tax identification number (FIN). Your federal tax identification number is also known as an employer identification number (EIN). The business credit bureaus will compile this data to create a report about your company’s business credit transactions. Just like with your personal credit, those issuing credit to you will rely on your business credit report to determine if you will be granted credit and how much credit you will receive.

Business credit is vital to a small business’s ability to succeed and grow … The key to building a business credit profile, specifically for small businesses just starting out, is to find companies that will establish credit for the business and report the business’s payment information to business credit reporting companies.

– Mary Ann Strout, Senior Product Manager for Experian Business Information Services

The major business credit bureaus that compile and provide copies of the reports are:

  • Dun & Bradstreet
  • Experian Business
  • Equifax Business
Insider Tip: You could go for years racking up business credit without any of it being reported to business credit bureaus. This is because the information provided to the business credit bureaus is sent in voluntarily– the credit bureaus may never see any of your business credit information.

How Business Credit Scores Are Calculated

Business scores are calculated differently from company to company. The Experian and D&B credit scoring systems use a range from 0-100, with 0 representing a high credit risk and 100 representing a low credit risk. The Equifax Small Business Credit Risk Score for Financial Services is intended to predict the likelihood a small business will face delinquency on financial services accounts within a period of 12 months. Equifax’s scoring system ranges from 101 to 816.

Your business score can range from 0-100, with 0 representing a high credit risk and 100 representing a low credit risk. Each credit reporting bureaus uses a different algorithm for calculating scores. The factors used in determining your credit score are as follows:

  • Number of trade experiences
  • Outstanding balances
  • Payment habits
  • Credit utilization
  • Trends over time
  • Public record recency, frequency and dollar amount
  • Demographics such as years on file, Standard Industrial Classification codes and business size
  • Delinquencies such as collections, bankruptcy, and liens
Make the most of the debt you already carry. Even if you are disciplined enough to not carry debt, you’ll still find several compelling reasons to get a business credit card.

How To Build Business Credit

Establishing a business credit file is not as effortless as establishing a personal one. To start your business credit file with Experian, begin by searching for your business on http://www.experian.com/small-business/establish-business-credit.jsp. This is a quick look to find out whether there may already be a business credit file that has your name with the agency. If you find your company, move on to the task of building commercial relationships with creditors.

If nothing shows up, the responsibility is on you to first establish a verifiable business. Experian needs to pick up independently verifiable evidence. This could be a business bank account, a utility bill at a commercial location, a business phone listing, a credit account in the business’s name with a vendor who reports the data, corporate registration, or various other public records.

  • Insider Tip: Before you start to apply for credit make sure your corporate records, state filings and required business licenses are all up to date. In addition, get your company’s phone number listed in the 411 directory so a supplier or lender can complete every aspect of its verification during the underwriting process.

Wondering which companies report business account data? So are we. Unfortunately, credit reporting agencies, as a matter of policy, do not divulge the names of companies that report to them. Anecdotal online evidence suggests that national brands catering to businesses are good bets. Examples include National Pen, NEBS, Uline, Grainger, and Quill. Others report negative items only. When you are ready to start building a business credit file, ask the company you want to do business with whether they report regularly to one or more credit reporting agencies.

65% off all business owners use credit for business purchases. But what’s alarming, is that only 50% of those cards are actually in the business’ name.

Steps To Building Business Credit

Step 1: Incorporate

  • Your first step in building business credit should be to separate yourself from your business by incorporating. This is essential because a corporation is a legal entity distinct and apart from you. If your business is currently formed as a sole proprietorship or a partnership, you will need to change to a C corp, an S corp, or an LLC.
Insider tip: Before you begin creating business credit, learn about the liability of business credit cards for owners and employees in our Q&A video with credit expert John Ulzheimer.

Step 2: Obtain an Employer Identification Number (EIN) from the IRS

  • An EIN identifies your business for tax and credit purposes. Having an EIN allows you to separate your Social Security number from that of your business’ credit profile.

Step 3: Registering with D&B

  • When you apply for business credit, suppliers and lenders will do a credit check on your business through D&B. To establish business credit, you need to register under D&B’s database and set up your company’s profile.
Insider tip: D&B uses a 9-digit DUNS (Data Universal Numbering System) number to identify every business that has a credit file. The DUNS code is “the most widely used number for identifying companies in the United States,” according to the Small Business Administration. Unlike Experian, Dun & Bradstreet will open a file on your business at your request.
D&B offers a service to help people build and maintain credit as a business, but you do NOT need this to get a DUNS number: Build a Strong Business Credit File with D&B Credibility Corp. and Receive a 25% Discount for Annual CreditBuilder™ with discount code BUILDYEAR.

Step 4: Opening a Checking Account

  • Open a checking account with your bank your business’ name. This should be done using your EIN and DUNS numbers.

Step 5: Opening a Business Savings Account

  • It’s also important to open a business savings account. See Step 7.

Step 6: Obtaining a Business Credit Card

  • A business credit card in your company’s name is a must, but only if it’s truly a commercial account. Even if you use a specific credit card account for business expenses, you are not necessarily launched. You only establish business credit if the credit card issuer reports data specifically to business credit reporting agencies. You should put any business credit accounts you have in the name of the business, again using your EIN and DUNS number.

Step 7: Obtaining a Small Loan

  • Take out a small loan using your business savings account as collateral– that is, as security for the loan. Getting a loan for your business will really help you to establish a business credit profile.

Step 8: Managing Your Finances Responsibly

Insider Tip: Before long, your personal credit will be personal and your business credit will be business, and that is as it should be.

Tips and Advice on Business Credit

Most of my business expenses are paid through the internet. So having a credit card for this makes sense. I use it to pay my email marketing services, hosting and social media manager. It helps me to build my credit and I also earn rewards. I pay this credit card with my business bank account.

– Karen Martínez from Freelance from Scratch

When you incorporate your business it becomes its own person along with its own credit. That doesn’t mean you will automatically approved for a business credit card…but when a business is incorporated they can evaluate all of the corporations assets such as investors, business plans, financial reports and etc.

– Katie Sinare from Katie Raspberry – Business Blog

Protecting Yourself From Litigation

Today’s litigious climate reaches into every area of private and business life, and it can cost dearly, no matter how separate you keep your finances.
Sole proprietors may be especially vulnerable. It cannot be over-emphasized how critical it is to maintain a chasm between business and personal finances. Co-mingling of accounts could expose you to financial disaster. To better protect against a lawsuit, carefully and deliberately maintain separate business and personal finances 100% of the time.
That said, the creation of a business can be the most exhilarating, liberating, creative experience of your life. It takes much courage and there won’t be much free time but what you build is yours alone. Take your cue from Lee Iacocca – “You’ve got to say, I think that if I keep working at this and want it badly enough I can have it. It’s called perseverance.”

Building credit is essentially one of the first things young entrepreneurs should have at the back of their minds. Some simple actions to be taken are starting off with a low credit card limit as a student and making the appropriate payments every month. As soon as you’ve built an appropriate credit limit for yourself, make sure to keep below that boundary and continue to make your payments on time. The worst thing you can do to hurt yourself is probably build all this great credit and then burn everything you’ve ever worked for by not making payments on time.

– Grayson Bell from Debt RoundUp

A well-managed business credit report and superior business credit scores means less reliance on personal credit, which gives small business owners a vital edge when attempting to secure a business loan and trade credit, and limits personal liability.

– Legal Zoom

A Chase Ink business credit card, for example, despite its name, is not truly a business account, nor does it contribute data, good or bad, to your business credit file if you apply for it using your social security number. In that case, the card is personally secured and the terms are based on your personal credit. Unfortunately, positive behavior may not even benefit your personal credit score because a Chase Ink “business” card generally will not be reported alongside your personal credit cards.

Insider tip: Even if your credit card is in the business’ name, it won’t help the business build credit automatically. Typically, the credit card will not help build your personal credit.
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