How to build your business credit

Building a strong business credit profile is a smart choice for any company aiming for sustainability and growth. Just as individuals need good personal credit, businesses must establish and maintain solid credit to access better financing options, negotiate favorable terms with suppliers, and separate personal and business finances. Establishing business credit is a strategic process that can open doors to a multitude of opportunities, ensuring your business can thrive in competitive markets.

Why is it important to establish business credit?

Business credit is important for several reasons. First, it enables your company to secure loans and lines of credit necessary for expansion or overcoming temporary cash flow issues. A strong business credit score can also lead to lower interest rates, saving your business substantial amounts of money over time.

Plus, suppliers and vendors are more likely to offer better terms and credit limits to companies with good business credit. This not only improves your purchasing power but contributes to more flexible cash flow management. Establishing business credit also helps in separating your personal finances from your business operations, thereby protecting your personal credit and assets from business-related risks.

What is a good business credit score?

A good business credit score varies by credit bureau but generally, scores are viewed this way: 

• Experian’s Intelliscore Plus: scores range from 1 to 100, with 76-100 considered low risk. 
• Dun & Bradstreet PAYDEX: score ranges from 1 to 100, where 80-100 is seen as good, indicating on-time payments or better. 
• FICO’s SBSS: scores range from 0 to 300, with scores above 140 being favorable for SBA loan pre-qualification, though many banks prefer scores above 160​​​​.

Does my personal credit matter to my business?

Yes, you should always assume your personal credit will factor into how your business is viewed. In most cases, such as when applying for small business loans or business credit cards, lenders will consider your personal credit scores. This is even more true for new businesses and small businesses.

New businesses are typically classified as any business started within the past two years. But even businesses with longevity struggle to obtain credit based solely on business credit scores alone. 

How does business credit work?

Business credit scores are calculated using various factors, including:

• Payment history to creditors and vendors.
• Company size and age.
• The age of your oldest financial account.
• Credit utilization.
• Established trade lines.
• The industry’s risk of failure.

These scores are then used by lenders, insurers, and suppliers to assess the financial health and creditworthiness of a business​​.

Scores for your business share some similarities with how your personal credit scores are calculated. For example, there is more than one credit bureau that issues business credit scores. The main ones are Experian, Equifax, and Dun & Bradstreet. 

Experian and Equifax do you a favor by starting your credit profile based on your borrowing history. Dun & Bradstreet however, will require some steps to get your DUNS number (business identification) and PAYDEX score (business credit score). We will discuss how below. 

7 Steps to establishing business credit

Establishing business credit is a natural progression step that allows you to access better financing options, improve your credit limits with suppliers, and separate your personal finances from your business operations. Here are seven key steps to build your business credit:

1. Build your foundation

Before diving into the formalities of establishing business credit, laying a strong foundation for your business will need to be your first step. This involves:

• Choosing a distinctive and appropriate name that reflects your business’s identity and mission. 
• Securing a physical or digital location if needed.
• Crafting a detailed business plan that outlines your business goals, strategies for achieving them, market analysis, and financial projections. 
• Creating a website that presents you as a reputable and trustworthy company. This can house your contact information, services, products, and certifications if you hold any.

This solid groundwork not only sets the direction for your business but also enhances its credibility and attractiveness to future lenders and creditors.

2. Business filings 

The next step involves formalizing your business structure by choosing a legal entity, such as a sole proprietorship, partnership, LLC (Limited Liability Company), or corporation. This decision has significant legal and tax implications and contributes to the separation of your personal and business finances. 

Business registration
Business registration formally makes your business a legal entity. Not all states require registration, and if you operate under your legal name then you may not have to register anywhere. You can visit the SBA website to view all requirements for registering. 

Obtaining licenses and permits
After you select a legal entity, obtaining the necessary licenses and permits is next. The requirements vary by state, industry, and the specific type of business you’re operating. This step ensures your business operates legally and is recognized by government and financial institutions, laying the groundwork for establishing business credit.

For more information on what you will need start by contacting:

• Your state’s governor’s office
• Your secretary of state office
• Your county clerk’s office

3. Get a DUNS number

As we discussed earlier, the DUNS number will act as your unique identifier which lenders will use to see your business’s credit profile. A DUNS number is a nine-digit identifier that is unique only to your business, provided by Dun & Bradstreet.

Keep in mind that while it may take some paperwork, getting your DUNS number is free on the Dun & Bradstreet website. The application can take up to 30 days to be processed but for even quicker processing you can pay $229 for expedited service but it can still take up to eight days.

DUNS number vs. PAYDEX: What’s the difference?

A DUNS number is not your business credit score, instead, it’s the identification you need to establish a business credit score. A PAYDEX is your business credit score. Both are issued by Dun & Bradstreet.

Think of a DUNS number like your social security number and a PAYDEX like your personal credit score. You need your social security number as your universal identification to apply for credit and start a credit profile, but your credit score is what shows your creditworthiness. 

4. Get accounts that report to business credit agencies

To start building your credit, you need accounts that report your payment history to business credit bureaus. This includes trade lines with suppliers and vendors, as well as business credit cards and loans.

A PAYDEX score will only be issued after at least two credit profiles have shown three payments toward your account.

If you are just now starting your business and want to go for the easiest route to establishing business credit, a business credit card is likely your best move. 

Business lines of credit and bank loans typically are harder to get if you haven’t been in business for two years minimum. The only downside to a business credit card is your personal credit will be used to determine eligibility. 

5. Open a business credit card

Since opening a business credit card relies heavily on your personal credit, if you have taken care of your credit and have a decent credit score this shouldn’t be a problem. But the factors for approval vary depending on your debt to income, credit history, and the issuer you apply for (Amex, Visa, Mastercard, etc.)

Start with where you bank personally. Since you have a relationship there the process of obtaining a business credit card may be streamlined and offer more leniency.

6. Pay on time

Your payment history is the most significant factor affecting your business credit score. Ensure you pay all your bills on time or early to build a positive payment history. This can lead to increased credit limits and better credit terms in the future​​.

Where many have trouble is keeping up with multiple payment dates and accounts. If you have trouble remembering to make a payment, set up auto-pay to avoid any risk of paying late or missing a payment altogether.

7. Monitor your credit

Regularly monitoring your business credit helps you track your progress, identify and correct inaccuracies, and understand how your financial behavior affects your credit score. 

You can check your business credit reports through services offered by Experian, Equifax, Dun & Bradstreet, and also consider subscription services like Nav Prime for ongoing monitoring and building your credit profile​​​​.

How long does it take to establish business credit?

Establishing business credit doesn’t happen overnight. It may take a few months to a year or more to build a credit profile that lenders and vendors consider strong enough to merit favorable terms. The timeline can vary based on several factors, including how quickly you undertake actions that contribute to a credit profile, such as opening accounts that report to credit bureaus and making timely payments​​.

How do I build business credit fast?

To build business credit quickly, start by ensuring your business is properly set up and registered. Then, get a DUNS number and open accounts with vendors that report payments to the business credit bureaus. Use these accounts regularly and pay the bills early or on time. Opening a business credit card that reports to the credit bureaus and using it responsibly can also help build your credit profile more rapidly​​.

Can I establish business credit without debt?

Yes, you can establish business credit without incurring debt by using trade credit. This involves setting up accounts with suppliers that offer net 30 terms, meaning you have 30 days to pay the bill in full. If these suppliers report your payment history to business credit bureaus, you can build credit by making timely payments without borrowing money​​​​.

What is the starting credit score for a business?

A new business typically starts with a low credit score or no score at all because it hasn’t established a credit history. For example, Intelliscore by Experian and Dun & Bradstreet Paydex score both start from 0 as a base and go up to 100. Building a positive payment history and having a mix of credit accounts can help increase your score over time​​.

How do I check my business credit score?

You can check your business credit score by requesting a report from the major business credit bureaus; Dun & Bradstreet, Experian, and Equifax. Some bureaus may offer one free report, while others charge for access. Monitoring services offer a convenient way to check and monitor your business credit score, including free and paid options​​​​.

How swoop can help

Swoop Funding can assist in navigating the complexities of establishing and building business credit. With a platform designed to match businesses with the right funding solutions, Swoop provides access to various business loans, grants, and other funding options that can help build your business credit. 

By leveraging Swoop’s resources, including advice on managing finances and accessing credit products that report to the bureaus, businesses can effectively establish and improve their credit profiles, paving the way for future financial opportunities and growth. Explore Swoop Funding to discover how it can support your business credit journey.