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Businesses have credit reports and credit scores, just like people do. Your business credit is the combination of those things.
Here’s how it works.
What Is Business Credit?
Business credit is an indicator of how responsible your business is with managing debts. Think personal credit, but more like a tool you can use to fund your business. A determinant of how much your business can borrow in the future.
Higher business credit scores equal greater limits and credit line accessibility.
All businesses need funding in order to scale and operate. However, business owners don’t want to run the risk of securing loans or credit lines in their name. This can leave them financially vulnerable, putting their credit score and personal funds at risk.
Business credit solely impacts the business in question. This allows businesses to secure as much funding as possible without putting founders’ personal credit and assets at risk. The difference between the two affords business owners greater protection.
The better your business credit, the more you’ll be able to borrow. With the right financial habits, you can build your business credit score over time to increase your credit limits.
But this is just an overview of business credit. What are the types? Who are the major bureaus in this sector? More importantly, how can you build better business credit?
What Are the Different Types of Business Credit?
Not all credit solutions look the same.
Knowing what types of business credit are available to you can help build business credit more effectively.
Here are a few types of business credit products you will come across in your search.
Looking to pay for a major expense or fund a new business endeavor? Business loans can help you access the capital you need to make it a reality. There are different types of business loans available to today’s entrepreneurs.
This could include a traditional business loan, a business credit builder loan, or even an equipment loan. Just make sure your activity is being reported to all major business credit bureaus.
Business Credit Cards
Business credit cards can be an excellent place for many business owners to start. It’s not uncommon for business owners to see $10,000 credit limits.
This is ample to help you afford business essentials and beyond. There are also secured and unsecured cards to choose from to get started.
Credit Vendor Accounts
Unless you operate solely online, you need goods for your business. Credit vendor accounts will help you access goods and services while building your credit.
There are net 30, net 60, and even net 90 vendors. (This indicates how long you have to pay back your debt after a purchase.)
No matter which option is best suited for your needs, you have plenty of choices to help you establish and build credit.
What Are the Different Credit Reporting Agencies for Business?
Most business owners are already familiar with the personal credit bureaus. These include Experian, Equifax, and TransUnion.
You likely wouldn’t be surprised that two of these three same bureaus have their hands in business credit as well.
The reality is that there are several business credit agencies you can use to learn more about your score. However, we’re going to focus on the three main business credit reporting agencies.
The first is Dun & Bradstreet. Dun & Bradstreet is the most famous business credit bureau. They also make it easy to set up credit monitoring for your business. They have several business credit scores, and one of the most well known is the PAYDEX Score. Their PAYDEX Score range is between 0 to 100.
The Delinquency Predictor Score and their Failure Score are other D&B business credit scores.
One business credit bureau many are familiar with is Equifax Business. Equifax offers two unique scores. This includes the Equifax Business Failure Score and Equifax Business Credit Risk Score. Both can help you determine the financial health of your business and take action immediately.
Finally, there’s Experian Business. They offer a similar scoring system to Dun & Bradstreet. They also offer a Financial Stability Risk Rating to help you understand your risk of bankruptcy.
How Can You Build Business Credit?
There are several steps that you can take to begin building business credit. Each of them is relatively easy to achieve. The sooner you can access your desired credit accounts, the sooner you can get funding!
Here’s how you can get started.
Register Your Business As a Legal Entity
Some people function as independent contractors. They may be a sole proprietor. In this instance, they may not have a separate business checking account. Everything runs through their personal accounts.
Of course, you don’t want this. You want to register your business as an LLC or a corporation. This protects you financially and legally by making the business its own entity. Set aside some time to research this process or work with a legal expert who can do it for you.
Open a Business Bank Account
Having a business bank account is of the utmost importance.
Lenders do their due diligence to ensure that you can successfully pay back the money that you borrow. Some lenders reject applicants who don’t have business bank accounts.
Open a business bank account as soon as possible so that you can track your business income. This also gives you access to banking business services and makes you look more legitimate to clients.
Get a Federal Employer Identification Number & DUNS Number
A federal Employee Identification Number is a must for most applications and other business paperwork. You might have already come across this in your own personal business research.
However, a DUNS (Data Universal Number System) number can be an entirely new concept to most business owners.
A DUNS number is a number associated with Dun & Bradstreet. This 9-digit number is connected to your Live Business Identity.
Having a DUNS number can help others determine whether or not they wish to partner with or support your business. It brings them directly to your Live Business Identity. This provides them with insight into your business and its financial health.
Have a Business Phone Line
Having a business phone line doesn’t just establish you as a legitimate business. It also doesn’t just serve to help your customers or clients get in touch with you easier.
Getting your own business phone line can actually help you get more business financing, as well. Many lenders will reject businesses that don’t have their own, dedicated business lines.
Apply for a Business Credit Card
Applying for a business credit card can be an excellent way to start building business credit. It provides a valuable business tradeline that will appear on your business credit reports.
This is especially true for those who might not qualify for other alternatives.
Here are a couple of things to pay attention to when applying.
- What are the terms and benefits? Pay close attention to what the card has to offer and whether or not that’s valuable to your business.
- Who does it report to? Does it report to the major business credit bureaus? More importantly, does it report to personal credit bureaus? You certainly don’t want the latter!
- What is the credit limit? Is it secured or unsecured? Will the credit limit be raised later? These are vital questions to ask yourself when applying.
Work With Vendors That Report Payments
Your business needs goods and services. So why not build your business credit in the process?
Work with vendors that report your payments to the major credit bureaus. They usually offer net 30 accounts. This will help you develop a credit history that will start raising your credit score. With time, you can then use this to tap into funding that will carry your business further.
Pay Vendors Early
It’s crucial that you never fall behind on payments.
But while on-time payments are great for your credit, early payments could be more impactful. That’s because you can’t get a perfect PAYDEX Score unless your payments are made early.
It demonstrates to lenders and vendors that you’re capable of handling payments with ease. It can help you access better funding opportunities, especially if you’re just starting your business credit journey.
What Are the Benefits of Business Credit?
Of course, some business owners may ask, what are the benefits? Why exactly do I need business credit?
There are several benefits to focusing on building business credit.
Qualify for Financing
The better your business credit, the more business financing opportunities you’ll have. It can also often be more reliable than some of the funding alternatives available to you.
Additionally, you’ll have better opportunities as well. Simply put, you need business credit to finance your business throughout its lifetime.
Good Business Credit Means Better Interest Rates
Without business credit, you’ll often have to pay higher interest rates and get less desirable terms.
Until you prove yourself, lenders are going to be cautious about working with you. But once you begin to build your business credit, you can tap into credit lines with better interest rates, less fees, and longer repayment timelines.
If you want to be able to access tens or hundreds of thousands of dollars without high interest, you need to have established business credit.
Separate Business and Personal Finances
In a perfect world, no business owner would have to take out loans or credit cards with a personal guarantee (PG) against their assets.
If you build your business credit, you can access funding without a personal guarantee.
The biggest issue is that this can make you liable for any debts of the business or other financial issues. However, it can also impact your personal credit scores. If you miss payments because your business underperforms, your personal score will plummet.
Using business credit ensures your business is the only thing at risk.
More Financing Options
There are simply far more financing options when you turn to business credit instead of personal credit.
Additionally, the credit limits are usually higher.
Building your credit allows you to take advantage of all of this. Even with low to no business credit, it’s worth it to focus on business credit than relying on your personal credit.
Business credit is the best way to finance your business.
Aspiring business owners can easily build credit by establishing a business and opening accounts. As your credit limit rises, so too does your capacity to further fund your business.
If you’re looking to boost your business credit score, the guide above will provide you with everything you need to get started.
- Net 60 Vendors to Help Your Business Grow
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- Tier 1 Business Credit Vendors [Updated 2023 List]
- 10 Best Business Credit Gas Cards to Help You Run Your Business
- Net 90 Vendors [And Creative Ways to Get Better Terms]
Dylan Buckley is a freelance finance writer and editor with 7 years of professional experience. Specializing in personal finance, cryptocurrency investments, and Fintech, Dylan is deeply passionate about creating content that helps readers make informed, confident financial decisions. He studied finance in college and maintains a credit score over 780.