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Tips for Building Business Credit

Date: December 20, 2023

29% of businesses sought funding via business credit cards in 2022, and 4.67% of respondents reported that they had used business credit cards as their primary source of funding to kick-start their businesses.

Forbes Advisor’s 2023 Poll

What is business credit?

Business credit refers to a company’s creditworthiness and its ability to borrow money or obtain goods and services on credit. It is distinct from personal credit, which is based on an individual’s financial history and creditworthiness. Business credit is associated with a business entity and is used by lenders, suppliers, and other creditors to evaluate the company’s ability to fulfill its financial obligations.

Business owners should actively manage and monitor their business credit, addressing any issues promptly to ensure a strong credit profile. Regularly checking business credit reports and scores helps in identifying and correcting inaccuracies, maintaining financial health, and enhancing overall creditworthiness.

Key Aspects of Business Credit:

Credit Reports

Business credit reports are compiled by business credit bureaus, such as Dun & Bradstreet, Experian Business, and Equifax Small Business. These reports provide information on a company’s credit history, payment patterns, outstanding debts, and other financial aspects.

Credit Scores

Business credit scores are numerical representations of a company’s creditworthiness. These scores are calculated based on the information in the business credit report. Different credit bureaus may use varying scoring models.

Creditors and Suppliers

Businesses can establish credit relationships with creditors and suppliers, allowing them to obtain goods and services on credit. Building positive relationships and consistently meeting payment terms can contribute to a strong business credit profile.

Loans and Financing

Business credit is a crucial factor when applying for loans or financing. Lenders assess a company’s creditworthiness to determine the risk associated with providing a loan. A positive business credit history can lead to better loan terms and interest rates.

Trade Credit

Trade credit involves buying goods or services on credit from suppliers. Timely payments for trade credit contribute to a positive business credit history and may result in increased credit limits.

Business Credit Cards

Business credit cards are a common tool for building and managing business credit. Using business credit cards responsibly, making timely payments, and maintaining low credit utilization can positively impact a company’s credit profile.

D-U-N-S Number

A D-U-N-S Number, provided by Dun & Bradstreet, is a unique identifier for businesses. It is widely used by creditors and suppliers to track and assess a company’s credit history.

Read Article: How to Apply for a DUNS Number

Separation from Personal Credit

Establishing business credit allows for a clear separation between personal and business finances. This separation is important for protecting personal assets and improving the company’s financial credibility.

Establishing Business Credit

Building business credit is a gradual process that requires consistent financial responsibility. By following these tips, you can establish a positive credit history for your business and improve your access to financing options in the future.

Register Your Business

Register your business as a legal entity (e.g., LLC, corporation) to separate your personal and business finances. This helps build a distinct credit profile for your business.

Read Article: Find Out How to Start a Business in Your State

Obtain an Employer Identification Number (EIN)

Apply for an EIN from the IRS. This unique identifier is used for tax purposes and is necessary for establishing business credit.

Read Article: How to Apply for an EIN?

Open a Business Bank Account

Open a dedicated business bank account in your company’s name. Use this account for all business transactions to help establish a clear financial history.

Register with Business Credit Bureaus

Establish a credit file with business credit bureaus such as Dun & Bradstreet, Experian Business, and Equifax Small Business. These bureaus track your business credit history.

Apply for a D-U-N-S Number

Obtain a D-U-N-S Number from Dun & Bradstreet. This unique identifier is widely used by lenders and vendors to assess a business’s creditworthiness.

Read Article: How to Apply for a DUNS Number

Establish Trade Credit

Work with vendors and suppliers who report to business credit bureaus. Establishing trade credit allows you to build a positive credit history based on your payment behavior.

Use Business Credit Cards Wisely

Apply for business credit cards and use them responsibly. Pay your balances on time and keep credit utilization low. Business credit card activity is often reported to business credit bureaus.

Pay Bills on Time

Timely payment of bills, loans, and trade credit is crucial for building a positive credit history. Late payments can have a negative impact on your credit score.

Monitor Your Business Credit Report

Regularly check your business credit report for inaccuracies or discrepancies. Address any errors promptly to maintain an accurate credit profile.

Gradually Apply for Larger Credit Lines

As your business credit profile strengthens, consider applying for larger credit lines or loans. Gradual and responsible credit usage can positively impact your credit score.

Seek Professional Advice

Consult with financial advisors or credit professionals to get personalized advice for building and managing your business credit. They can offer insights based on your specific industry and financial situation.

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