4 Steps To Building Business Credit

Having good credit for your business provides many benefits, such as a higher chance of getting approved for loans, lower interest rates, and the ability to negotiate contracts.

In order to generate a good credit score for your business, you’ll need to work on building your credit in the same manner as you build your personal credit. If you don’t have credit established just yet, there are a few steps you can take.

Keep your information current with all three credit bureaus

There are several credit bureaus that collect data and create business credit scores, including Dun & Bradstreet, Experian, and Equifax. Each business credit bureau has a different formula for calculating scores, and different lenders report different types of data.

Establish trade lines with your suppliers

If you buy supplies, ingredients, or other materials from third-party vendors, those purchases could help build your business credit.

Many suppliers extend trade credit, which means they allow you to pay several days or weeks after you receive the inventory. If you have this type of accounts-payable relationship, ask your supplier to report your payments to a business credit bureau. Your business credit score will get a boost as long as you stick to the terms of the trade agreement.

You need at least three tradelines to get a Dun & Bradstreet Paydex score, which measures past payment history. Even if you don’t work with a lot of suppliers, you can set up tradelines with any small vendor, such as your water or office supplies distributor. If those vendors don’t report to a credit bureau, you can list them as a trade reference on your account, and Dun & Bradstreet will follow up to collect your trade data.

Make payments to creditors on time or early

Although each credit bureau uses slightly different methods of crunching business credit scores, all of them consider your history of paying creditors. To ensure a good score, make sure your payments are on time or, even better, early. Dun & Bradstreet only assigns perfect Paydex scores to those who pay early. Also, credit utilization is a factor in business credit scores as it is with personal credit scores. So use your cards and lines of credit, but don’t max them out. Limit your spending to 20% to 30% of your credit limit.


Borrow from lenders that report to credit bureaus

Small-business loans can actually boost your business credit if you make all your payments on time and the lender reports to a business credit bureau. But not all lenders do. So if you’re intent on building business credit, ask the lender whether they report before you take out a small-business loan.

Banks typically report to credit bureaus, but if you have poor or limited credit, you probably won’t qualify for a bank loan. Many online small-business lenders which are more willing to lend to bad-credit borrowers also report, including OnDeck, LendingClub, Funding Circle, and Blueline. However, other lenders including SmartBiz, Fundbox, and merchant cash advance companies don’t report.

Keep your public records clean

In addition to detailing your business’s history of paying creditors, your business credit report will have any public records filed in your business’s name, including bankruptcies, judgments, and liens. A judgment is a court ruling; if the ruling is against you in a debt collection lawsuit, it will have a negative effect on your credit score. A lien is a creditor’s legal right to seize your property unless you pay an owed amount, such as an outstanding small-business loan or unpaid taxes.

These negative marks on your business credit report can haunt you. Bankruptcies, for example, stay on your Experian credit score for 10 years; tax liens, judgments, and collections remain for almost seven years.