How To Build Business Credit

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An Asian woman uses a credit card. There is a rack of clothing in the background.

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Small Business Saturday is November 25. Take advantage of our Small Business Saturday Guide for tips and advice from small business owners.

Building business credit is essential to running a business because it provides a financial outlook to creditors and lenders on how well your business handles money. A new business can rely on personal credit to get started. But an established business should be able to stand apart from the business owner’s finances, expanding its lending opportunities.

Take these steps to build a solid business credit history.

Legally, you can start a business under your personal name. However, there are many benefits to registering your business entity, including tax deductions and protection against being held personally liable for business interactions. You may also need to show business formation documents when applying for a business bank account, credit card or loan.

According to the Small Business Administration, you typically need to register as a business with your state. Some cities or counties also require you to register your business or get the proper licenses for your business type. S corporations also need to file the IRS Form 2553 to make their S corp status official.

Decide which of these business entities makes the most sense for you.

Business entity Description
C corporation Owners of a C corporation are considered shareholders and get dividends from company profits as well as liability protection. But the corporation is taxed separately from the shareholders, causing a double tax on income received.
S corporation An S corporation is considered a pass-through entity, allowing shareholders to report income, losses, deductions and credits on their personal tax returns. There are tax deductions on reporting both dividends and losses.
Limited Liability company (LLC) LLC status is granted at the state level and offers limited protection for its members against personal liability.
Nonprofit organization A nonprofit is an organization that doesn’t operate for a profit or pay dividends to members. States have different limitations or exemptions for nonprofits, such as limiting the amount they can be sued.
Partnership A partnership is owned by two or more people who contribute assets and skills to the business. The partners report their share of income and losses on their personal tax returns, but they’re not considered employees.
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While not required, every business looking to build its business credit score should apply for a Data Universal Number System (D-U-N-S or DUNS number) from Dun & Bradstreet. That’s because Dun & Bradstreet is the most popular business credit bureau used by creditors and suppliers.

Applying for a DUNS number opens a credit file with the bureau, allowing you to start building your Paydex score. You may be asked for your DUNS number when getting a loan or becoming a supplier in the US or internationally.

Do you need an EIN number?

You need an Employer Identification Number (EIN) if you want to build business credit since creditors and lenders ask for your EIN on applications. The EIN is also used for federal taxes and applying for business licenses.

You’re required to get an EIN in certain circumstances, such as having employees or operating as a partnership, according to the SBA.

Some small businesses like a sole proprietorship or single-member LLC can use their social security numbers. But doing so relies on your personal credit history rather than accounting for your business credit.

Many vendors or suppliers allow you to pay 30, 60 or 90 days after you buy their supplies — the commercial version of buy now, pay later. These are called net 30, net 60 or net 90 vendors. Vendor credit accounts are a great way to build business credit if you don’t have much credit history and don’t qualify for other types of credit.

But in order to build credit, you have to check that the vendors actually report your payment history to one or more credit bureaus. Vendors aren’t required to do so.

Not only do business credit cards help you build credit, but they come with a host of other advantages, such as:

  • 0% intro APRs. You can find business credit cards with a 0 percent introductory APR. This could help you borrow money without interest for a short time, such as 12 or 18 months.
  • Bonuses and rewards. Most business cards offer cash, points or miles if you spend so much money within a certain time period. Many also continue building rewards with every purchase, though the rewards structure is different for every card.
  • Payment grace period. While not required, most card issuers give grace periods of at least 21 days from your statement date to the due date.
  • Credit reporting. Your payment history will be reported to the business credit bureaus: Dun & Bradstreet, Equifax and Experian.
  • Accessible to startups. Business credit cards are another form of credit that’s easily obtained with little-to-no credit history.
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Learn more: How business credit cards work.

Your payment history is one of the most important factors that builds your credit score. Creditors and lenders are essentially looking to see that you can pay your bills and debts consistently and on time. They also look for a lengthy history of making timely payments.

If possible, set up automatic payments to make sure that all credit cards, loans and vendor bills get paid by the due date.

Bankrate insight

Your business credit can affect your personal credit if your business card issuer chooses to report your payment history to consumer credit bureaus. For example, your business card issuer may report a high balance or missed payments to consumer credit bureaus, dinging your personal credit score. This is yet another reason to keep up with the business bills.

Credit utilization, or how much of your available credit you use, is another major factor in your business credit score. For this reason, you want to avoid maxing out your business credit card or business line of credit.

Keeping your credit utilization to about 30 percent of your available credit is a good rule of thumb. If you regularly need more than that amount, you can request to raise your credit limit to keep the ratio low.

As you work at building credit, check your business credit report to see the impact that your actions have on your credit. Depending on which credit bureau you request from, you can see your history from different credit accounts, changes to your credit over time and even scores that assess your business’s risk of failure. Generally, the scores are calculated from:

  • Business size
  • Credit utilization
  • Length of payment history
  • Payment history
  • Risk of business failure
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Bottom line

Building business credit takes some groundwork to register your business name and establish sources of credit. At first, your options may be limited to business credit cards, trade credit or loans backed with a personal guarantee.

But if you’re consistent with payments and monitoring your credit report, your business may be able to secure loans in the future with prime interest rates and terms.

  • While personal and business credit are two separate entities, sometimes, they overlap. This happens when you are a sole proprietor: Your personal credit heavily impacts your business credit, and vice versa. In general, sole proprietors can get approved for a business credit card because qualification depends on your personal credit history. The card will show up on your consumer credit reports, though, so treat it responsibly. If you don’t, and it goes delinquent or into default, your credit will be damaged, and the creditor can take legal action against you.
  • An EIN is issued by the IRS and used for tax purposes. A DUNS number is issued by the company Dun & Bradstreet and used to build your company’s business credit profile.
  • When applying for business credit, the application will ask you to provide your Employer Identification Number or your Social Security number. You can enter your EIN number when prompted in the provided space.

  • On a loan application, the DUNS number can’t replace the EIN. Your EIN identifies your business for tax purposes, while your DUNS number is tied specifically to your Dun & Bradstreet Paydex score.

  • It depends on the bureau — each of the three business credit bureaus issues several scores, each with its own scale. At Experian, business credit scores range from a low of 1 to a high of 100. The average business credit score is 62. SBSS scores range from 1 to 300, and many SBA lenders set minimum scores in the 160s.By contrast, Dun and Bradstreet’s delinquency score ranges from 1 to 5, and a lower score means a lower risk of late payment or bankruptcy.
  • Many business loan applications will consider your personal credit history in place of your business credit. If you apply for funding through the Small Business Administration or a traditional bank, you may need to build business credit first to prove financial stability.



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