How To Build Your Business Credit Fast In 2023
New business owners have a variety of options at their disposal if they want to build their business credit Fast rather than over time.
If you use all of these strategies together instead of focusing on just one or two, your credit score will improve even faster.
By registering your company (LLC, LLP, or corporation), you are creating a legal entity with the ability to enter into contracts. It is treated as a separate entity from you personally.
Keeping your business and personal finances separate begins with building credit in the name of your company. Here are 14 simple steps you can take to build your business credit fast.
What Is Business Credit?
As we discuss how to build business credit, let’s take a step back and define what business credit is.
Business credit is an estimation of the business’s risk or ability to repay a loan or other financial obligations, much like personal credit. Business credit reports are generated with scores based on payment history, debts, and credit utilization, as well as information available in public records and general information about the business.
How Does Business Credit Work?
Let’s explore business credit more thoroughly and answer the question, How does business credit work?
According to our previous discussion, one of the main differences between business and personal credit is that business credit is tied to your EIN. Therefore, when you open business bank accounts, get credit cards, and pay suppliers for your business, this information becomes part of your credit report and is reported to credit bureaus that deal specifically with business credit.
Business credit reporting agencies include Dun & Bradstreet (D&B), Experian, and Equifax. Companies collect information from vendors and creditors you do business with, as well as from legal filings and public records. In order to establish your business credit, they use credit reporting algorithms to calculate a numerical value: your business credit score.
The business credit score, however, will vary depending on the credit bureau, as each agency has its own formula for calculating your score, unlike a personal credit score which is based on a standard evaluation method.
Why a Good Credit Score For a Business is So Important
1. Financing is cheaper
Having a good business credit score allows you to not only qualify for loans and other financing, but also get lower interest rates. Because of this, your business can borrow at a lower price, saving money. Especially when applying for loans from conventional banks, having a good business credit score can be one of the most important factors in obtaining favorable rates and terms.
2. Suppliers and lenders may agree to better terms
When it comes time to negotiate deals with vendors and suppliers, your credit score can be a valuable tool. If you have a good credit score, you may be able to negotiate lower prices, extend contract terms, or, if you’re financing, lower your interest rate.
3. Vendors may not require prepayment
You may need to prepay for certain B2B products and services. Vendors and service providers may not require you to put any money down if you have a strong business credit score. Therefore, you can better manage your business’s cash flow when you establish services. Even though it may seem like a small perk, this kind of perk can have a significant financial impact on your business.
4. It facilitates the separation of personal and business finances
An overlooked benefit of understanding your business credit score is the ability to separate your personal and business finances. Small business owners often invest their personal assets and savings into their businesses. This is the nature of building a small business.
Developing your business requires you to slowly separate your personal and business finances. One of the most important first steps is establishing a business credit score. In a world where most lenders require their borrowers to sign personal guarantees, having a business credit score can help limit your exposure on business-related ventures.
5. Your business will be financially stable
In business, long-term success means building on a conservative financial basis and taking risks when needed. In order to build and maintain a good credit score, you need to develop certain financial habits. You’ll save money, plan your financial future, and create a stable and sustainable business. Building and maintaining a good business credit score is essential for long-term success.
14 Steps to Build Your Business Credit Fast
1. Business entity registration
To build business credit, it’s important to keep your business and personal finances separate. To do this, you’ll need to set up a registered business entity.
In terms of starting up and managing paperwork, unincorporated businesses-general partnerships or sole proprietorships-are the easiest to work with. In such structures, however, the owner and the business are not legally or financially separated.
Whenever you work with a vendor or apply for a loan, you will have to provide your social security number. Therefore, your business activity will be reflected in your personal credit report.
2. Obtain an EIN
The IRS requires employer identification numbers (EINs) for most entities. EINs are similar to social security numbers. An EIN is attached to business credit profiles the same way a social security number is attached to a personal credit profile. Lenders use this number to determine whether your business is creditworthy.
Every bank requires an EIN before opening a business bank account. A credit trial can be started without using your Social Security number with one of these.
3. Establish a business bank account
A business bank account is crucial for distinguishing business expenses from personal expenditures. When you open this account, your business credit report will be able to see what money you’re taking out of your business and putting into it.
Once you have an EIN, you should explore your options and open a business bank account that’s right for your company. You should only use this account for business expenses, from utilities and rent to your business phone. You can also build business credit by paying for these purchases in full and on time, time.
As a result, opening a business bank account will not only provide a bank reference to the three credit bureaus.
Establishing a business bank account for a few years can lead to better credit accounts in the future. Small business lenders look for borrowers with established business bank accounts.
4. Get a business website
If you have a website, lenders can learn more about your business, and this plays a role in their decision-making process when they are deciding whether to approve your business for a loan. A lack of a proper business website raises a red flag among prospective lenders.
Having a professional and easy-to-use business website is crucial. Lenders want to know how your business operates. Websites should convey what your business does, who your customers are, where it is located, and what your products and services are.
5. Continue building relationships with vendors
As you build your business, continue to establish and build a relationship with vendors and create contracts for supplies and other business materials. When you pay vendors that report to credit agencies on time or early, you build credit. However, not all vendors report to the same agencies. Consider your business’s needs, then check which vendors in that vertical report to credit agencies.
6. Use your business credit card
You can build business credit by opening, using and paying off business credit cards. Establish a business credit card and use it every month once your bank account is established and your business is operating.
Choose the right credit card for your business. Certain cards offer rewards that may be beneficial for a particular business. Keep in mind that, especially when just starting out, your credit limit may be low. As your credit score improves, your credit limit will increase.
Pro Tip: For more information dig out our guide on how to build credit with a credit card.
7. Pay early and often
The most powerful tool you have when building credit is simply paying your bills on time. When you pay your bills on time and in full, you prove that you can repay your debts. however, you may be able to build your business credit score even faster.
Credit is basically an agreement between you and a lender that you’ll pay them later for a product or service (or access to money, in the case of credit cards) you need now. So, when your bills are due, make sure to pay them. This is the most basic concept behind establishing credit.
8. Apply for a business DUNS number
Dun & Bradstreet is probably the best known of the three business credit bureaus we discussed earlier. PDEX is a credit score used by creditors and suppliers. To build business credit, you should open a credit file with this agency.
You will need to register with DUNS, which stands for Data Universal Number System. DUNS is a business identification system. Once you apply, you will receive a nine-digit number. You can complete the process on the Dun & Bradstreet website for free, but you won’t get your DUNS number for 30 days.
9. Keep your information current with all three credit bureaus
Dun & Bradstreet, Experian, and Equifax are among the credit bureaus that collect and calculate business credit scores. Businesses use different formulas to calculate credit scores, and lenders use different types of data to determine credit scores.
As you never know which credit bureau your vendors, creditors, or potential customers will check, it’s a good idea to maintain all three.
10. Get a business loan
Business loans can provide you with access to larger amounts of capital. Many entrepreneurs use these loans to expand rapidly. Establishing business credit is the key to getting the best terms for business loans. By following these steps and making your payments on time, you’ve set yourself up to be approved for the best business loans.
11. Establish trade lines with your suppliers
You may be able to build your business credit through purchases from third-party vendors.
Many suppliers offer trade credit, which means you can pay several days or weeks after receiving the inventory. Ask your supplier to report your payments to a business credit bureau if you have this type of accounts-payable relationship. As long as you keep to the terms of the trade agreement, your business credit score will improve.
To get a Dun & Bradstreet Paydex score, which measures past payment history, you need at least three tradelines. Even if you don’t work with many vendors, you can establish a tradeline with a small supplier, such as your office supplies or water distributor. Dun & Bradstreet will collect your trade data if those vendors don’t report to a credit bureau, so you can list them as a trade reference on your account.
12. Ask for higher Net-30 credit lines
Your credit utilization is based on the ratio of your net 30 account balance to your credit line limit. This ratio is important to lenders. In general, the higher your credit limit and the lower your balance, the better your credit utilization score. The higher your credit utilization rating, the better your business credit rating.
This will allow you to access more credit and get better loan terms.
You can increase your net 30 credit limits with your current net 30 vendors. If you’ve paid your net 30 invoices on time for at least six months, you should be approved for a higher credit line. Check out our net 30 payment term guide to lean more about net 30 account.
13. Keep your public records clean
Business credit reports detail the history of your business’s debt repayment, as well as any public records relating to your business, such as bankruptcy filings, judgments, and liens. The judgment is a court ruling; if it is against you in a lawsuit for debt collection, it will adversely affect your credit score. A lien is a creditor’s right to seize your property if you don’t pay an owed amount. Examples include an unpaid small-business loan or unpaid taxes.
14. Focus on credit utilization.
Utilization of credit plays an important role in building a credit score. You can maximize your credit score with business credit cards, just like with personal credit cards. It’s recommended that business owners use no more than 30% of their credit limit. This shows lenders that you are not only financially responsible, but you can also meet your minimum balance each month.
Having a good business credit score is essential for running a financially viable and healthy company. Your company proves to lenders and other companies that it is financially sound and able to pay its obligations. It can not only help you obtain loans, but it can also help you avoid prepayment. A good credit score can help you negotiate down prices and obtain more favorable interest rates and terms on financing packages from banks and online lenders.
Once your business is legally established, the best way to establish credit is to pay your bills on time – and early whenever possible. You can further improve your credit rating by opening credit cards and keeping your credit utilization below 30%. Maintain your company’s financial reputation, and check your credit score periodically with the major credit bureaus.
Building business credit is important as it helps separate personal and business finances, improves access to financing, and enhances the credibility of your business.
To establish business credit quickly, start by incorporating your business, obtaining an Employer Identification Number (EIN), opening a business bank account, and applying for a business credit card.
Factors that affect your business credit score include payment history, credit utilization, length of credit history, public records, and industry risk factors.
Building positive payment history involves making timely payments to your creditors and suppliers, ensuring you meet all financial obligations related to your business.
Yes, alternative ways to build business credit include establishing trade lines with suppliers, leasing equipment under your business name, and partnering with other businesses for credit-building opportunities.