If you’re unfamiliar with your business credit score or haven’t checked it before, you’re not alone. According to a survey by Hello Alice, which questioned over 5,000 business owners, 80% of small business owners said they either don’t have a business credit score or don’t know what it is.*
Like personal credit reports and scores, business credit scoring is managed mainly by three bureaus: Experian, Equifax, and Dun & Bradstreet. While personal credit scores typically range from 300 to 850, business credit scores fall between one and 100, or 0 to 300, when using the FICO Small Business Scoring Service (FICO SBSS).**
A small business credit score is determined by various business-specific factors such as company size, industry risk, age of credit history, payment history, and debt. If you’re serious about improving your business credit, there are a few steps you can take.
Summing up: building business credit
- Building business credit isn’t just a formality; it’s strategic, enabling better financing offers and lower interest rates, similar to the perks of having a great personal credit score.
- Establishing your business, acquiring an EIN, opening a dedicated business account, and using financial products like business credit cards are essential for building business credit.
- Regularly checking your business credit is crucial for maintaining financial health, identifying issues early, ensuring accurate credit profiles, and facilitating smoother financing processes, like getting a business loan.
Why building business credit is important?
Establishing and building business credit is not just a financial formality; it’s a strategic move for your business’s long-term success. A robust business credit score can unlock a world of advantages, making you eligible for favorable financing offers and lower interest rates on loans. Just like a solid personal credit score can lead to a 0% APR credit card offer or a significantly lower interest rate when buying a home, a strong business credit score can pave the way for your business’s financial growth.
A solid business credit score can open doors to opportunities such as using business financing to expand your operations, acquire other businesses, or consolidate debt.
While business credit is indeed important, it’s crucial to note that some lenders also consider your personal credit score when evaluating your creditworthiness. This means that maintaining a good credit standing in both your business and personal accounts is essential. In doing so, you can ensure you’re in the best position to secure favorable terms and rates when you need to borrow money for your business.
Ways to build business credit
Just like building personal credit, there are a few important factors to consider when establishing and improving a business credit score. Whether you’re a new business owner trying to set up your business credit for the first time or a seasoned entrepreneur aiming to boost your credit scores, following these steps is crucial.
Establish your entity
The first step in building credit is getting your business set up. There are various types of business structures to consider, such as LLCs, sole proprietorships, partnerships, and corporations. When choosing your entity type, there are a few factors to keep in mind:
- Number of employees: If you plan to run the business by yourself for the foreseeable future, options like LLCs and sole proprietorships might be better suited. In fact, over 80% of U.S. small businesses are solo endeavors.† However, a partnership or S corporation setup might be more appropriate if you intend to hire staff or have multiple founders.
- Financial considerations: Establishing an LLC generally involves lower costs compared to setting up a corporation. If you’re operating on a tight budget, starting with a simpler business structure could be a prudent choice, knowing that you can always transition to a different entity type as your business expands.
- Compliance obligations: Forming a corporation comes with certain responsibilities like holding annual meetings and issuing stock, which aren’t required for other entities such as LLCs.†† Understanding these compliance requirements is essential, and seeking guidance from a business attorney can be beneficial.
- Tax management preferences: Each entity type is taxed differently, with some being subject to self-employment tax and others to corporate tax. Consulting with a tax attorney or accountant can help you navigate the complexities of taxation and ensure your entity is set up most advantageously.
Acquire an EIN
Once you’ve selected a name for your company and completed the registration process with your state, the next step is to get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). Think of the EIN as similar to a Social Security Number (SSN) for your business instead of yourself. Thankfully, the IRS has streamlined the process, allowing you to apply for an EIN online quickly and easily in just a few minutes.
Open a bank account for your business
An essential step for any new business is to establish a clear boundary between your personal and business finances. This separation helps with organization, offers legal protection, and makes it easier to track your business’s financial health.
Opening a business checking account is straightforward, though requirements may vary by bank. Most banks will ask for basic business documentation, such as the name, address, and articles of incorporation, as well as the EIN and an initial deposit, to get started.
Having a dedicated business account lets you easily manage incoming revenue and outgoing expenses, making tax preparation and financial reporting much smoother. Plus, it adds a layer of professionalism to your operations, showing clients and partners that you’re serious about your business affairs.
Use financial products
Using financial products like a business credit card can help boost your business credit score. Unlike personal credit cards, business credit cards are tailored for business expenses, making it easier to track spending separately from personal finances. By responsibly using a business credit card—paying off balances on time and in full—you demonstrate financial reliability to creditors and credit bureaus, which may improve your credit score over time.
A higher credit score tends to unlock better financing options with lower interest rates, which can be crucial for business growth. When exploring how to get a business credit card, consider factors like interest rates, rewards, and credit limits to choose the best fit for your business needs.
Apply for a D-U-N-S® number
A D-U-N-S number is a unique identifier provided by Dun & Bradstreet, one of the three business credit reporting bureaus that links your business’s credit activities to its identity. Having a D-U-N-S number allows potential creditors and suppliers to quickly assess your business’s creditworthiness, which can be critical for securing financing, negotiating favorable terms, and building trust with partners and clients.
While a D-U-N-S number may have been automatically created for your business (you can look up your D-U-N-S number here if you’re not sure if you have one), it’s easy to apply for free as part of D&B Credit Insights if you don’t have one.
Regularly check your business credit
Regularly monitoring your business credit is crucial for maintaining financial health and identifying potential issues early on. Closely monitoring your business credit report can help you detect inaccuracies, unauthorized inquiries, or signs of fraud that could negatively impact your credit score and business reputation. To check your business credit:
- Request a copy of your credit report from major credit bureaus like Experian, Equifax, and Dun & Bradstreet. You can typically access these reports online or by mail but note that there is often an associated cost. In some cases, you may be eligible for a free copy or be able to view your score for free online by signing up for an account and providing your email address.
- Review the report thoroughly, paying attention to any discrepancies or areas that need improvement.
- If you spot any errors, take immediate steps to dispute and correct them to ensure the accuracy of your credit profile. Depending on the credit bureau, disputes may involve contacting the creditor as well as the credit reporting bureau.
Staying proactive and monitoring your business credit regularly can help you safeguard your business’s financial well-being and maintain a positive credit standing so you won’t run into any unexpected issues when applying for a small business loan.
How BHG Financial can help with building business credit
If you want to boost your credit score by consolidating business debt, BHG Financial can help. BHG Financial provides business loans up to $500,0001,2 so that you can pay off debt and invest additional funds into your business. Plus, longer repayment terms of up to 12 years1 give you affordable monthly payments. Get started by viewing your monthly payment estimate.
Building Business Credit FAQs
What is the fastest way to build business credit?
Similar to building personal credit, there’s no fast pass to a better credit score. However, opening a business credit card and paying it on time may help establish your score. Borrowing from lenders that report to the business credit bureaus can also help build your score.
Do brand-new LLCs get business credit?
A new LLC may automatically establish business credit if the owner begins to open business-related accounts. Keep in mind your personal credit history may be considered to qualify for a business credit card or other financial products.
Does your EIN have a credit score?
When you establish business credit, it will be tied to your EIN. However, the EIN itself does not have an associated credit score.
