How to Build Business Credit Fast in 10 Simple & Effective Steps

Updated Aug 3, 2022.
How to Build Business Credit Fast in 10 Simple & Effective Steps

How to build business credit quickly is a common question asked by startups and existing small business owners. Every business needs access to funding to thrive in the competitive marketplace. For many small businesses owners, funding is not sufficient for it to handle its business costs including expansion drive. 

Establishing a strong business credit profile can help these businesses make their business plans come to fruition. It makes it easy for you to get business financing for your immediate and future needs. 

A strong business credit score makes it easy for businesses to obtain different business financings such as business line of credit, Small Business Administration loans, and others. Even if you do not plan on getting business financing at the moment, it is important for you to build your business credit profile quickly for the day you will need it. 

Building your business credit score takes longer to build compared to your personal credit score. It is important that you start building your business credit score early and quickly to get access to business financing quickly when you need it. 

In this article, you will learn about the steps you need to take to build your business credit quickly. You will also learn about business credit basics and business credit reporting agencies including reasons why building business credit is important for your business.

Let’s get started.

Business Credit Basics

Business credit is primarily the ability of a company to pay business debts, that is, buy goods now and pay later or pay back loans borrowed. The ability to be granted loans or access to pay later for goods bought depends on your business credit rating. It is based on some trust between the lender and the borrower, and this trust is obtained from how efficient your business credit score is.

The same way you build your personal credit score from your financial history as an individual is the same way you build your business credit score from your business financial history. 

Your business financial history centers on how efficiently you have handled any business credit, trade lines from vendors or suppliers, and many more. Your business credit score or profile shows financiers your trustworthiness in handling business loans.

Lenders, investors, financiers, suppliers, insurance companies, and other organizations use your business credit profile to evaluate the creditworthiness of a business. 

The categories of people that use your business credit profile to grant your business credit review it for different purposes. For example, suppliers verify your ability to pay for goods bought on credit. Investors use it to evaluate the potential return on investment (ROI) they get when they put money into your business.

Building business credit is not as complicated as people make it to be, but it needs planning and intended actions. Building your business credit quickly helps you obtain the loans you need to operate your business efficiently.

At some point in your business career, you would need the help of your suppliers or investors, that is where the business credit report helps. These externals will only be willing to offer help to businesses with good business credit ratings.

Reasons for not receiving financing by small businesses in the United States in 2019
Source: Cloudistro

Business Credit Reporting Agencies

There are four main services that score businesses based on their ability to handle debts payment. Each service has its model of accessing these businesses.

Out of the four, the two most popular services are Experian and Equifax. These two services also calculate personal credit scores based on your financial history. Dun and Bradstreet (D & B) is another service that evaluates business credit, while FICO is the last service. FICO offers scoring services for small businesses.

Each reporting agency has its yardstick for evaluating businesses, either small-scale or large-scale. Primarily, what most agencies do is to gather the necessary information from the vendors that you do business with. 

Some agencies also collect information from creditors, public records, or legal filings. With the help of a business credit algorithm, they rate your business with a numerical value, which is also called a business credit score. It ranges from 0 to 100.

Unlike personal credit ratings, which have standard evaluation methods, different bureaus have their methods of evaluating businesses. That is, your business might not have the same credit score when rated by two different agencies.

Dun and Bradstreet (D & B)

D & B is the agency with the most straightforward method to score businesses. What they focus majorly on is how fast your business can pay its debts. The name of this scoring method D & B use is PAYDEX score.

Late payments of debts attract lower scores, while payments of debts before due time attract higher scores.

PAYDEX Score       ExplanationStatus
100   Payment comes 30 days sooner than termsLow Risk of Late Payment
90   Payment comes 20 days sooner than termsLow Risk of Late Payment
80   Payment comes on termsLow Risk of Late Payment
70   Payment comes 15 days beyond termsMedium Risk of Late Payment
60   Payment comes 22 days beyond termsMedium Risk of Late Payment
50   Payment comes 30 days beyond termsMedium Risk of Late Payment
40   Payment comes 60 days beyond termsHigh Risk of Late Payment
30   Payment comes 90 days beyond termsHigh Risk of Late Payment
20   Payment comes 120 days beyond termsHigh Risk of Late Payment
1 – 19   Payment comes over 120 days beyond termsHigh Risk of Late Payment

Experian and Equifax

Experian and Equifax both consider numerous factors in scoring a business. Some of the key factors are outstanding balances, tradelines, credit accounts, payment history, and time in business. 

Unknown to many, time in business may affect your business credit score. This factor is the edge that businesses with many years in operation have over startups. Public records like bankruptcy can also affect the way Experian and Equifax score your business.

Experian Intelliscore       Risk Class        Risk Description
76 to 100   1       Low
51 to 75   2   Low to Medium
26 to 50   3       Medium
11 to 25       4       Medium to High
1 to 10           5       High

FICO

FICO is a different breed in the evaluation of businesses. They do not monitor businesses from time to time. What they do is gather data from the other agencies to calculate a realistic risk-determined score. 

After collecting all possible data and there is still not enough information to determine a score, they consider personal financial history. In the case of startups, the personal credit score of the business owner plays a major role.

These four business credit reporting agencies use different criteria to calculate a business credit score. However, they all want to achieve one goal, and that is to assess the risk in lending your business loans. 

Whatever score they give makes it easy for investors and lenders to determine if they can trust you enough to lend you money.

FICO SBSS Business Credit ScoreRisk Description
300 – 166 High Score
165 – 155Typical Score Needed for Credit Approval
154 – 0Low Score

How to Build Business Credit

Building a business credit early in the life of your business is key to obtaining business finances from lending bodies. Although building a good business credit takes time, it is not difficult once you understand the steps that can help you improve and build your business credit history faster. 

1. Register Your Business Entity

The differences between personal credit history and business credit history prompt the demand to build your business credit. Therefore, the first step is to register your business entity. The reason why is to keep your personal finances and business finances separate. 

You have to register a different entity for your business to separate it from your personal finances efficiently. Business entities like sole proprietorship are easy to work with considering the paperwork, but there is no legal distinction between the business and the owner.

When you want to apply for a loan from a financial institution or buy goods on credit from a vendor, you have to provide your personal social security number (in the case of sole proprietorship). Providing an SSN (Social Security Number) will make your business activities reflect your personal credit history. 

If you want to establish your business credit, you have to choose between the following entities:

  • Limited Liability Company (LLC) is a type of entity that provides financial distinction and liability defense between you and your business. LLCs are easier to manage than corporations because they offer flexibility on tax payments.
  • Limited Liability Partnership (LLP) is a registered type of business entity commonly used by professionals like doctors, lawyers, and engineers.
  • S-corporation is a type of entity in which the business's profits are taxed at the individual level.
  • C-corporation is an entity ideal for businesses that are planning to issue stocks in the future. C-corps also offer financial separation between you and your business.

You can consult a business attorney or financial accountant if you are not sure of the business entity to choose regarding your type of business. There are online legal services you can use to register your company such as ZenBusiness, Rocket Lawyer, Incfile, Avvo, and UpCounsel. 

2. Get an Employer Identification Number (EIN)

After registering your business under a legal entity, the next step in building your business credit is to get an EIN. For tax payments, the Internal Revenue Service (IRS) uses the EIN to track businesses. 

The way your Social Security Number (SSN) serves as an ID for personal taxes is the same way your EIN serves as an ID for your business. Some business entities like single-member LLCs and sole proprietorship use the owner's SSN for tax payments. Other types of businesses that require employees' use need an Employer Identification Number.

Nevertheless, even if you are not required to get the number, it would be best to get it anyway because getting an Employer Identification Number (EIN) will help you build your business credit. 

When you apply for credit cards or loans, you will be asked to provide your Social Security Number (SSN) or Employer Identification Number (EIN) on the application form.

If you just have only a Social Security Number (SSN) to offer, then you only have your personal credit report to rely on to give you good loan offers and flexible interest rates. But if you have an EIN to offer, your business credit will be attached to the number, and then you can use it to qualify for the purchase of goods on credit and business financing.

How to Get an Employer Identification Number (EIN)

Getting an Employer Identification Number (EIN) is free and easy. You have to apply to the IRS for your EIN. There are several application methods: online application, U.S mail, and fax. Applying online via the IRS website is the fastest way to get your EIN.

How to Apply Online

  • Navigate to the IRS website
  • Fill the EIM application form online and submit
  • Wait to receive a confirmation letter and your EIN

How to Apply by U.S Mail and Fax

  • Download a copy of Form SS-4 (You can find a free copy on the IRS website)
  • Fill the form and fax it to (855) 641-6935 or mail it to the IRS EIN Operation branch in Cincinnati, OH 45999
  • You will receive your EIN in about four days if you applied by fax and provided a fax number on your EIN application. 
  • You will receive your EIN in about four to six weeks if you applied by U.S mail.

What Information Do You Need to Fill the Form SS-4?

  • The name of the person in charge of the business
  • The name of the business
  • The Social Security Number and Individual Taxpayer Identification Number of the person in charge of the business
  • The mailing address of the business
  • The type of business entity 
  • The type of business activity
  • The date the business was founded or acquired
  • The reason why you are applying for an EIN

3. Open a Business Banking Account

Opening a business banking account is vital to separate your personal and business finances when choosing your business entity. It is also important for building business credit. Some of the best bank accounts for small businesses include Wells Fargo, BBVA, Comerica, SunTrust, PNC, First Citizens Bank, and Bank of America.

A business bank account will allow business credit reporting agencies to see the money coming in and going out due to business transactions. Also, they will be able to report the information in your business credit reports.

Owning an EIN will allow you to explore different options and open the right business account for your company. When you open your business account, you do not just abandon it; ensure you use it frequently. 

You should use your business account to pay for expenses alone, such as utilities, equipment, rent, debts on products, and business cell phone charges. As long as you make payments for these expenses in time or before due, you are also building your business credit.

Opening business bank accounts provide bank references for reporting agencies. Additionally, it gives room for better credit accounts in the future. Business lenders are willing to offer loans to businesses that have bank accounts opened for several years.

6 reasons why you should keep your business and personal bank accounts separate
Source: Enkel

4. Open a Business Credit Card

Business credit cards and lines of credit are used mainly by startups and small businesses to finance business operations and boost the growth of a business. Apart from keeping your business running smoothly financially, it also helps you establish and build your business credit. 

The primary reason most startups collect a business credit card is to finance their day-to-day operations. At the same time, business credit cards cement the difference between personal and business finances, thereby building business credit.

A business line of credit works the same way as business credit cards, excluding the physicality of the card. For the line of credit, the funds stay in your bank account, and you can withdraw the money the moment you need it. When you have the funds to pay back, you can pay to reset your balance. 

Borrowing and paying back on credit cards also assist you in building your business credit – given that you pay back on time and in full.

If you are starting your business and do not have good personal credit and are also finding it hard to register for business credit cards, you can apply for secured business credit cards. A secured business credit card is always backed up by a funds deposit that you make in your account. 

Also, if you want to buy equipment and you do not have cash on you, you can consider leasing. This allows you to obtain the equipment and grow your business, and subsequently build your business credit.

67% of small-business owners have a business credit card, but only 24% use it as their primary way to pay for business spending
Source: Business Credit Cards

5. Pay on Time

This step is a no-brainer for business owners that have been running for years. On-time payments significantly boost your business credit score. It is proven to be one of the best ways that a business owner can show that investors and lenders are open to reduced risks regarding lines of credit or trade credit. 

Making periodic payments is a good method of avoiding negative remarks on your business credit report if you can not afford a full one-time payment of debts. It is important to set automatic payments every month and ensure you do not miss them to achieve efficient periodic payments. 

One benefit of automated payments is the avoidance of late payment charges and interests. That being said, if you can pay the full amount at once, it would be best to make the payment.

6. Borrow From Lenders that Report Your Credit Payment History to the Business Credit Bureaus

If you pay back loans on credit cards and to lenders before the due date, you would be proud when you look at your business financial history. Nevertheless, you will want to be sure that credit reporting agencies recognize how well you handle your business debts and how you are building your business credit from them. 

To achieve this, you will want to work with lenders that the credit bureaus use to gather information about your business credit.

Normally, lenders should report your business history to one or two credit bureaus. Still, some do not because most financial institutions already submit business owners' debts repayment histories to credit reporting agencies. 

If you want to build your business credit from fast repayments of loans from lenders, you must check your lender's policy if the agreement is there before acquiring loans.

7. Decrease Credit Utilization and Borrow Responsibly

When trying to build your business credit, the same way you carefully deal with debts for your personal credit is the same way you should be careful with your business financial history. It would be best if you always kept on your mind to borrow responsibly no matter how bad the situation is. 

With the responsible acquisition of loans – from business credit accounts and on-time payments without owing – you will see your business credit scores improve.

Another factor to take note of is your credit utilization. Credit utilization talks about the amount you borrowed and the amount you utilize. These two factors are how credit utilization is determined. For example, if you use half the amount you borrowed, your utilization ratio is 50%. 

The credit utilization ratio is another major determiner of business credit score. A high credit utilization ratio makes your business a big risk regarding your business credit report. Therefore, if you want to build your business credit effectively, you need to reduce your utilization ratio.

Generally, ratios less than 30% are quite okay for your business credit history. The example that showed 50% is not good enough if you want to build your business credit. One good way to improve your credit utilization ratio is to increase your credit limit but do not use it. This will, in turn, build your business credit.

8. Separate Business and Personal Expenses

This step has already been discussed in some of the above steps in parts but needs to be a whole step because of its importance for building your business credit. Many business owners, especially small business owners, do not separate their business and personal expenses, and easily run into troubles with their business credit. 

By opening business bank accounts and business credit cards in your business’s legal name, you are effectively separating your business expenses from your personal ones. However, opening business bank accounts and business credit cards is of no effect if you keep operating your business or personal bank accounts like it was one. 

To build your business credit quickly, ensure that all your business expenses are spent with money from your business bank accounts and not your personal bank accounts. Likewise, do not use your business bank accounts to pay for personal expenses. 

Separating your business and personal expenses makes it easier for you to track your expenditure and calculate your taxes. 

9. Check Your Business Credit Report

For you to build on something, you have to be aware of where you stand. Being aware of your current position is already achieving the goal by half. 

Business credit reporting agencies like Experian and Equifax offer subscription charges for business owners to check their business credit scores and monitor their business credit growth. Some other third-party services might not tell you your exact score, but they can give free speculation of where you currently stand. These third-party services can also alert you when there is a change in your report, maybe if a new line of credit is opened. 

When looking at your business credit, you should take note of some things. For startups or small businesses, a business credit score is always from 1 to 100; 100 is the perfect score. But for the FICO SBSS rating, the scores get to 300. While evaluating your current position, be sure to set a target score for your business.

Another thing to pay attention to is what gives negative points. Examples are late payments of debts, missed payments, and high credit utilization ratio. Try as much as possible to avoid occurrences like these because they can bring down your credit score.

10. Clean Up Payment Recording Errors

Although unknown to many, errors are common in business credit reports. That is a good reason to monitor your standings all the time. Always check your credit report for outdated information that can affect your lenders' chances to verify your business credit. 

The best thing outdated information can do to your report is to delay your requests from being granted, while the worst is to be outright denied.

Payment recording errors might take a while to clean up, but it is very necessary. When you notice some errors in the report, you will need to settle with the credit bureaus and provide the necessary documentation to correct them. 

In the cases of signs of business fraud, you will go the extra mile to correct it not only on the report but also on other channels. The faster you find these errors and correct them, the better it is for your business credit history before things get out of hand to affect your future dealings.

Why Building Business Credit is Important

Although you can get by with your personal credit score for small loans, if you truly want to maximize the potential of your business, you need to build your business credit. Building your business credit is important for your business for a variety of reasons. 

1. Facilitates Good Relationship with Vendors & Investors

As a business owner, you will work with different suppliers and investors to run your business efficiently. Suppliers offer business owners trade credit (the chance to purchase goods on credit and pay later.) This is when you are buying materials, inventory, or equipment for operations. 

On the other hand, lenders choose to work with businesses that have a good business credit rating. It is proof that you have efficiently handled any past debts, and you will do the same to their money.

What suppliers need to be able to offer trade credit is just a track record of your early payment of bills and debts. In essence, business credit is important for business owners that want trade credit and flexible payment terms from suppliers or vendors. Trade credit does not only help with cash flow in business but also helps you build your business credit. 

Credit reporting agencies collect trade information from the companies you do business with. If you have a record of on-time payments and good management of debts, it will boost your business credit score.

2. Enhances Business Financing

One of the primary reasons for building business credit is that your credit score determines your lender's decision to do business with you. Lenders are only willing to grant you loans if they are impressed with your bills and debts payment track record. 

If your record shows that you are keen on payments and do not unnecessarily spend, they feel safer extending loans to you. Also, if you want to spark an interest in the minds of the best lenders, it would help if you have established good business credit.

When applying for loans, they do not just use the business credit to see if they are safe to work with you. They also use it to see how much money you are qualified for. Businesses often get higher credit capacities than individuals. 

Additionally, your business credit score determines the interest rates you receive on the loans you borrow. For example, SBA loans consider your FICO score before they can pre-qualify you for loans.

Consequently, building your business credit is paramount to securing business financing from external entities. As a startup, if you need to expand your business in the near future, it is very important to start building your business credit. Low credit scores limit your lending options because only a few lending bodies can offer loans to businesses with low scores.

3. Protects Your Personal Credit

Building your business credit can help you to secure your personal credit. From the first step of building your business credit which says ‘register your business entity,’ you can see that if you do not separate your personal finances from your business finances, your business activities can affect your personal credit. 

If you do not have good business credit, you might be forced to use your personal credit to secure funds. Although this is an option to resort to, it does not make it the best approach.

Using your personal credit cards to fund your business can negatively affect your personal credit report. The implication is that once your business experiences a major setback and you already have poor personal credit, your recovery will be very difficult. 

Asides from that, building business credit is very important for the business' rapid growth within a few years of operation. Once your company's growth curve is appreciative, thoughts of selling your company due to failed management will not cross your mind. And even if you decide to sell your company due to other personal reasons, the business credit will help the new owner in subsequent financing activities.

Martin Luenendonk

Editor at FounderJar

Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.

This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.