How to Establish Business Credit (in 8 Easy Moves)

Learning how to establish business credit is an important step for any small business owner. Here’s what you can do today to start building yours.
Last updated March 1, 2022 | By Matt Miczulski
How to Establish Business Credit (in 8 Easy Moves)

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If you’ve been thinking about how to start a business or are getting ready to launch your first business, you probably feel like you’re being pulled in all sorts of directions. Running a business is no cakewalk as you figure out how to make money from your idea. But, if you want to take your business to the next level, there’s one more thing you may want to think about — building business credit.

Just as your personal credit score affects so much in your personal life, so goes business credit and the role it plays for your business. Establishing business credit helps you maintain a credit profile independent from your personal credit history and allows your business to reap the associated benefits.

Here’s what you can do today to take a step in the right direction and establish your business’s credit profile — and enjoy all the benefits of good business credit as well.

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Why it’s important to establish business credit

Strong business credit can lead to lower insurance premiums and interest rates and help you get approved for things like leases, business loans, and business lines of credit without the need for a personal guarantee. A personal guarantee means you have promised the lender that you will use your personal assets to repay your business debts if need be. Although this can help with securing funding, it puts your personal finances at risk. If, however, you successfully demonstrate that your business is a separate legal entity from you, and you aren’t required to make a personal guarantee, your personal assets are shielded from the activities of your business.

Say, for instance, you invested all your money to get your business running, but it’s not enough. So, you need additional funding. If you don’t have a well-established business with significant commercial credit, a creditor may require a personal guarantee before it supplies the loan. If you default on that loan, the credit can then go after the personal assets you pledged for funding. Well-established business credit may allow you to avoid the requirement of a personal guarantee altogether.

With that in mind, let’s take a look at the eight moves you can make today to establish and manage your business credit.

How to establish business credit: 8 things you can do today

1. Incorporate your business or form an LLC

If your business operates as a sole proprietorship or partnership, your business is not a separate legal entity from you, the owner. Therefore, you aren’t able to separate your business credit history from your personal, and you will be personally liable for all debts and losses of the business. Although these types of business structures are suitable for some business owners, there’s no liability protection, and many financial institutions will classify your request for a line of credit as a personal loan. This can make it difficult to establish business credit.

Instead, consider other types of business structures — specifically, look into incorporating your business or forming a limited liability company (LLC). Doing this would ensure your business and personal identities are legally separated, so your personal assets won’t be at risk should you ever be sued.

2. Get a federal employer ID number (EIN)

Like a Social Security number is an identifier for individuals, a federal employer identification number (EIN) is an identifier for a business and separates it from every other company out there.

There are some instances when an EIN is required. An EIN is necessary on federal tax filings and is usually required when applying for various business licenses. You’ll also typically need an EIN before you can open most business bank accounts as well as when you apply for a corporate or business credit card in the name of the corporation or LLC.

So, before you can start building business credit, you should consider getting an EIN. Applying for and obtaining an EIN is free, and you can apply for an EIN through the IRS.

3. Make sure your info is publicly listed

Just because you’re open for business (or are getting ready to be) doesn’t mean anyone will be able to find your business. Once your business is on the map, you’ll be able to effectively establish credit.

Whether it’s a landline or cell phone, get a dedicated business phone line. Make sure it’s listed under your legal business name and have it listed in directories so people can find and contact you.

4. Open business accounts

One of the most important tools to keep your personal and business finances separate is to open a business bank account under your legal business name. Then, be sure to pay for your business expenses using this account.

It’s also a good idea to apply for a business credit card. Not only does this open a line of credit you can use for business expenses, but it’s also a great way to establish business credit. Keep in mind that although some business credit cards report only to the business credit bureaus, others may report your business credit history to your personal credit as well.

When it comes time to pay off your business credit card each month, make sure to pay your credit card bill from your business checking account.

5. Work with vendors and suppliers who report to credit bureaus

In addition to opening business credit cards, you can establish and build your business credit by working with vendors and suppliers that report payments to the three major business credit bureaus — Dun & Bradstreet, Equifax, and Experian.

Open accounts with vendors and suppliers to establish credit to use when purchasing from them. It’s important you work with vendors or suppliers that report to the credit bureaus. If not, ask the vendor if they can report your payment history to the credit bureaus or consider switching to a vendor that will.

6. Pay every bill on time all the time

Just as you would with your personal finances, make sure to pay your bills on time. This shows you’re responsible in the eyes of lenders and that you can be trusted with how to payoff debt. This can go a long way if you need additional credit in the future, especially while you're waiting for your cash flow to even out. Late and missed payments will harm your business credit, and this can lead to unfavorable terms and interest rates on lines of credit and even higher insurance premiums. Lenders, suppliers, and vendors may not all report to the same business credit bureaus, so make sure to always pay all your bills on time to keep all your credit reports clean.

7. Try to pay your bills early

You can boost your score even more by paying your bills early. One of the most common business credit scores is the Dun & Bradstreet PAYDEX score, which ranges from 1 to 100, with 100 being the best score. This score is calculated based on the promptness of your payments, so the earlier you pay your bills, the better your score.

For instance, for a payment made on its due date, you’ll receive a PAYDEX score of 80 whereas a payment made 30 days in advance will receive a PAYDEX score of 100. If you can make your payment sooner than it’s due, you’ll receive a better score.

8. Continue to monitor your credit

As your business grows, it’s best to monitor your credit. Regularly checking your credit score will ensure you don’t miss any mistakes that may drag your score down. It will also be helpful to know where you stand should you need future lines of credit or anything else that requires a hard inquiry to your business credit report.

Unlike with personal credit reports, there’s no law in place that requires companies to provide free access to your business credit report. All three major business credit bureaus provide copies of your full business credit report — but they do so for a fee. You can, however, get free access to all three business credit reports through Nav, a company that provides a free alternative for business owners to build and manage their credit.

Bottom line on building your business credit

If you’re just starting out with your new business, establishing good business credit can unlock doors to help you and your business succeed. There are several ways you can establish credit for your business, and it’s important to implement all of them to build as strong a credit profile as possible. Opening an easy-to-get business credit card and consistently paying your balance in full each month are the simplest ways to build business credit. Check out our list of the best business credit cards for more details.

Monitor your credit regularly so you know whether there’s anything negatively affecting your score and where you stand in the eyes of lenders. Strong credit allows banks, lenders, suppliers, retailers, and insurers to see the viability and creditworthiness of your business. This will impact the amount of credit you receive, as well as the payment terms, interest rates, and insurance premiums your business will pay.

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Author Details

Matt Miczulski Matt Miczulski is a personal finance writer specializing in financial news, budget travel, banking, and debt. His interest in personal finance took off after eliminating $30,000 in debt in just over a year, and his goal is to help others learn how to get ahead with better money management strategies. A lover of history, Matt hopes to use his passion for storytelling to shine a new light on how people think about money. His work has also been featured on MoneyDoneRight and Recruiter.com.