How to Establish Good Business Credit

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Many small business owners use personal credit to run their business. However, doing so could put you at risk if your business is ever in trouble. As the new owner of a business, one of the most important things you can do for your company is to establish and build business credit.

Author: NCH Editorial Team

May 04, 2015

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Many small business owners rely on their personal credit to run their businesses. However, doing so can expose you to risk if your business faces financial trouble. As a new business owner, one of the most important steps you can take is to build good business credit separate from your personal credit files. But how exactly does one go about establishing business credit? In this guide, we’ll share concrete steps for how you can build an excellent business credit history and enjoy the benefits of a high credit score for your company.

What is business credit?

A company’s business credit is an indicator of its financial reliability. It’s scored according to its business credit history, ability to make on-time payments, credit utilization, and more. This credit score then determines that business’s ability to borrow money from financial institutions. This credit score is very important because it allows business owners to fund their company, from capital to office leases to expensive equipment. With a poor business credit score, you might struggle to get approval for the loans necessary to keep your business running like a well-oiled machine. Business credit is scored differently from personal credit. While personal credit is scored from 300 to 850, business credit is scored from 0 to 100. If you score more than 75, it means you have a very good credit score and should keep it up!

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Why is it important to have good business credit?

A high business credit score tells investors, vendors, and financial institutions that you handle your payments well and settle your debts as soon as you can. This gives them more confidence to grant you financial products, whether it’s a loan or a line of credit. Essentially, better credit means a more stable cash flow for your company because you prove you can manage your financials. Here are just some of the many benefits you can reap when you have good business credit:

It separates your personal finances from your business finances
Approvals for insurance, loans, and lines of credit
Lower interest rates and payment terms for business credit cards
Vendors might trust you enough not to require prepayment for your purchases
More power to negotiate with lenders and suppliers
A steadier cash flow, allowing you to invest in more inventory for your company to grow

Establishing Good Credit: 8 Steps to Build Business Credit

1. Form a business entity like an LLC

First, establish your business as a separate legal entity from you. This might mean forming an LLC, corporation, sole proprietorship, or partnership. Getting your business an Employer Identification Number (EIN) from the IRS is also a must. Your EIN allows you to open bank accounts and pay taxes for your company, allowing you to establish good credit later.

2. Register for a DUNS (Dun-Bradstreet) number

Then, register for a Dun & Bradstreet (or DUNS) number. This number identifies your unique business. Creditors will ask for your business’s DUNS number when they issue you credit. It’s basically what you and your constituents use to track your business credit score.

3. Open a business banking account

Opening a business bank account allows you to apply and get approved for financial products, from loans to credit cards. It’s your stepping stone to getting access to the products that will ultimately build your credit later on.

4. Apply for business credit cards

Getting approved for business credit cards tells creditors that financial institutions trust you enough to pay your debts on time. Using your credit card for purchases is a terrific way to boost your credit fast. So, how many credit cards should your business have? As many as you can manage, as long as it’s actually necessary for your purchases and investments. More cards mean more reward points for your business. If you stay on top of payments, it also means a higher credit limit for future cards. Of course, it also means having to manage more accounts, so just make sure you’re organized in tracking the payments for each card.

5. Maintain a low credit utilization on your cards

A high utilization of your credit limit can raise red flags to financial institutions. It signals to those entities that you’re more susceptible to credit card debt. Try keeping your utilization rate at 30% or below so you don’t sound any alarms.

6. Pay your credit cards on time

On-time credit card payments are ultimately what will raise your business credit. This tells banks that you stay on top of your payments and won’t go running. Settle your balances well before the payments are due, and you’ll see your credit rise in no time!

7. Ask vendors and suppliers to vouch for you

Another way your business credit is scored is based on how your suppliers report your payment history. Feedback from vendors you work with vouching for your up-to-date payments reassures creditors that you pay your loans and debts on time. Plus, Trade references are among the factors that make a business tradeworthy. Note that suppliers have no legal or ethical obligation to report this information to business credit bureaus. Most suppliers may not report the information at all unless you nudge them a little. So, to establish credit, ask trusted vendors and suppliers you’ve worked with for a long time to report your transaction information to business credit bureaus.

8. Monitor your business credit reports and scores

Stay on top of your credit scores by generating your business credit reports or using tools like Dun & Bradstreet CreditSignal. This helps you see where you’re at with your credit and how much more work you should do to pull it up.

Establish good credit for better financial health for your business!

Establishing business credit helps you maintain financial health for your company and boost trust with your vendors and investors. Our business credit experts can help you lay down the groundwork for building stellar credit for your company, allowing you to fund your projects more easily. Remember, forming an LLC is the first step to drawing the line between your personal and business finances, allowing you to start building your business credit. Ready to take the next step in growing your business? Learn about NCH’s Nevada LLC formation services by calling us at 1-800-508-1729 to schedule a free consultation with one of our specialists! “The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.”

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How to Establish Good Business Credit

Start Your Business with a Nevada LLC

Content

What is business credit?

Start your Nevada LLC in
24 hours guaranteed

Why is it important to have good business credit?

Establishing Good Credit: 8 Steps to Build Business Credit

1. Form a business entity like an LLC

2. Register for a DUNS (Dun-Bradstreet) number

3. Open a business banking account

4. Apply for business credit cards

5. Maintain a low credit utilization on your cards

6. Pay your credit cards on time

7. Ask vendors and suppliers to vouch for you

8. Monitor your business credit reports and scores

Establish good credit for better financial health for your business!

Book Your FREE 1:1 Business Checkup

Speak With a Business Expert

Looking for something?

Maximize Profits and Minimize Risks with a Nevada LLC

Business Formation Services

Experts by your side,every step of the way

Cort Christie

How to Establish Good Business Credit

Start Your Business with a Nevada LLC

Content

What is business credit?

Start your Nevada LLC in24 hours guaranteed

Why is it important to have good business credit?

Establishing Good Credit: 8 Steps to Build Business Credit

1. Form a business entity like an LLC

2. Register for a DUNS (Dun-Bradstreet) number

3. Open a business banking account

4. Apply for business credit cards

5. Maintain a low credit utilization on your cards

6. Pay your credit cards on time

7. Ask vendors and suppliers to vouch for you

8. Monitor your business credit reports and scores

Establish good credit for better financial health for your business!

Book Your FREE 1:1 Business Checkup

Speak With a Business Expert

Looking for something?

Maximize Profits and Minimize Risks with a Nevada LLC

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Experts by your side,
every step of the way

Start your Nevada LLC in
24 hours guaranteed