How to Establish Business Credit in 5 Simple Steps

Why is Business Credit Important?

Knowing how to establish business credit for your company, and generate a good credit score, is essential to ensuring your business’s success. A good business credit score will secure preferable rates from lenders and insurance companies. It will enable you to deal with large banks and give you increased negotiating power when making financial arrangements.

You may have checked your business credit score and are not entirely satisfied with it. You may be wondering how to establish business credit for the first time. Where can you find companies that help build business credit? How long does it take to build business credit? Luckily, there are a number of ways to verify your business’s financial credibility and improve your business credit score. Here are five of them. 

How to Establish Business Credit

Have You Incorporated?

We must address one thing before we go into detail on what a credit score is and how to obtain business credit. The steps below assume that you have already incorporated and registered your business. 

These are not different approaches for different company types; the steps outlined below are relevant for learning how to establish business credit for LLC, S Corp, or C Corp business structures. However, the main business credit bureaus typically require details such as the EIN, office address, and phone number before they will add you to their database. 

How Does Business Credit Work?

Your business gains financial credibility for every on-time payment, new credit account, and dollar of paid-down business debt. Business credit bureaus like Dun & Bradstreet, Experian, and Equifax record your credit history. They evaluate a business’s credit score based on their database of various payment history like leases and banking information. 

A common business credit score, the Experian score, is on a scale from 0 to 100. The more responsibly you’ve paid your business’s bills, the closer to 100 your business credit score will be. This score is treated as a measure of your trustworthiness as a debtor.

Build Business Credit Quickly With These 5 Steps

Now that you’re familiar with how business credit works, let’s discuss short-term and achievable plans for improving your business credit score. 

Whatever your motivation for working on your business credit, here are five straightforward ways to build business credit history quickly.

1. Open a Business Bank Account

Opening a business bank account will give your business a financial homebase. Be sure to open this business bank account under your business’s exact legal name and use your employer identification number (EIN). That way, your on-time bill payments will register as coming from your business and will be easier to track as a result.  

2. Obtain a Business Credit Card

Are you still using your personal credit card to pay for business expenses? Not only are you creating a logistical nightmare by combining your personal and business expenses, but you’re missing out on an easy way to establish business credit.

Credit card companies are often the first vendors for business credit building you’ll interact with. A business credit card can be secured or unsecured. The main difference is that a secured credit card issuer will require you to provide a deposit before you can use the card. This can be a good option if your business is new or has a poor credit history.

Using a business credit card (secured or unsecured) and paying your bill in full and on-time every month is the best way to build business credit without disrupting your typical workflow. If you’re going to buy those office supplies, that plane ticket to visit a client, or that bulk inventory order, you might as well do it with a tool that can improve your credit score.  

3. Report Historic On-Time Payments

Many businesses have an extensive archive of timely payments that have already happened. These are indicators of your business’s financial credibility and shouldn’t be lost to the world. If you have a stellar record of paying on time for your business’s phone, internet, and utility bills, you can use a service like eCredable to report payments from up to two years back to certain credit bureaus. 

4. Seek Out the Right Vendors to Establish Business Credit

Your main focus going forward should be on companies that help build business credit., Pay attention to whether or not your vendors report your responsible payments to credit bureaus. Try to take your business wherever your credibility and reliability are made known to the prominent financial institutions.

You can also use suppliers and vendors for business credit building by negotiating extended payment terms. An extended payment agreement is where a supplier or vendor delivers a product or service to you but doesn’t seek payment until after an agreed-upon period. This sets up a credit arrangement that will contribute to establishing business credit, as long as you pay on time.

When choosing a creditor (like a small business lender, a business credit card provider, or both), research whether or not they report payment activity to business credit bureaus. You might be surprised how many business vendors only report to personal credit bureaus. If you’re lucky, you can find vendors and creditors who report to both.

How to establish business credit - Credit Bureaus

5. Manage Credit Actively

You can develop several regular habits that will help increase your credit score. These include:

Monitoring Reports 

Bureaus deal with thousands of new transactions every day. Mistakes can happen and may have a negative effect on your credit score. It pays to regularly analyze your standing with the leading institutions and ensure they accurately reflect your company’s activities. Fixing a mistake on your credit report can be one of the quickest ways to increase your credit score.

Credit Utilization

When it comes to learning how to obtain business credit, an important metric to keep in mind is credit utilization. This represents how much credit you currently use versus your available credit. For example, a company with a credit card debt of $10,500 but a credit limit of $30,000 has a credit utilization of 35%.

One of the best ways to build business credit is to keep your company’s credit utilization to 30% or less. You can achieve this in two ways. You can pay down your debt balance until you reach the desired percentage. Alternatively, you can seek to increase your credit limit so your current balance represents 30% of your total available credit.

How Long Does It Take to Establish Business Credit?

Building a strong business credit profile does not happen overnight. However, following a consistent and disciplined approach will very likely lead to improvements in your score in the next six to twelve months. 

The five steps outlined above are levers you can pull to make information about your financial trustworthiness more accessible to the bureaus. Make sure business credit bureaus are in-the-know about your business’s stellar record, and you’ll have access to more affordable financing in the future.