Business Credit Steps

Building Business Credit

Business Credit
October 04, 2024•4 min read

Building business credit is crucial for gaining access to financing, improving cash flow, and establishing credibility with vendors and partners. Your business growth and future depend on having readily available access to cash and credit at a moment’s notice when times are tough.

You can use these 10 helpful steps to ensure your business can get funded and have the cash and credit it needs without worry.  

1. Establish Your Business Entity

  • Form a Legal Entity: Register your business as an LLC, corporation, or another legal structure. Sole proprietorships do not have separate business credit.

  • Get an EIN: Obtain an Employer Identification Number (EIN) from the IRS. It works like a Social Security number for your business.

  • Open a Business Bank Account: When building business credit, you should have a separate business checking account assigned solely for the business.  Use it exclusively for business transactions to separate personal and business finances. Never mix personal and business funds.

2. Register with Business Credit Bureaus

  • Get a DUNS Number: Dun & Bradstreet assigns a DUNS number to your business, which is used to track credit. Apply for this online for free at DandB.com   When building business credit having a DUNS number is vital for establishing business credit.

  • Monitor Your Business Credit Reports: Check credit reports from business credit bureaus like Dun & Bradstreet, Experian, and Equifax regularly. Using Fundability can help you with this task.

Securing financing

3. Build Vendor Relationships

  • Open Net-30 Accounts: Many vendors offer "Net-30" payment terms, meaning you have 30 days to pay after receiving goods or services. These vendors often report payment history to credit bureaus, helping you build credit.   Use the Fundability tool suite to help you with this effort.   It not only helps you apply for new vendor accounts, but it will show you the underwriting requirements before you apply.

  • Make Timely Payments: Always pay bills on time or, even better, ahead of time to build a strong payment history. This is crucial for establishing creditworthiness.

4. Apply for Business Credit Cards

  • Start with a secured business credit card or a card from a smaller issuer. Use it for business expenses and pay the full balance each month to establish credit history. Never use a personal credit card for business.

  • Eventually, you can upgrade to an unsecured business credit card with higher limits and more rewards.  When you apply, ensure that only the business EIN number is used to check your credit with.   If you are unsure talk directly with the vendor first.

5. Establish Trade Credit

  • As you build relationships with suppliers, ask for extended payment terms (e.g., Net-60, Net-90).  Fundability makes this very easy and saves you a lot of time.

  • Make sure they report your payments to all three business credit agencies.  If they don’t then you need to reach out to the credit agencies and manually send them the payment information so it can be reported.   This is a critical step for the first 12 months of your business financial process. 

6. Limit Credit Inquiries

  • Too many credit inquiries can harm your credit score, so apply for new credit sparingly and only when necessary.  Try and limit your inquiries to three per 90 days.  Do not provide your personal social security number when applying for new business credit unless the vendor requires it for contact information use only.

Credit Cards for Business

Keeping inquiries low is a best practice

7. Keep Debt Levels Low

  • Manage your credit utilization ratio by keeping balances on credit cards and lines of credit low relative to your limits.  Your building business credit journey depends on how much you spend and when you pay your bills.  Nothing else matters.  However, it helps to never over spend so, its important to keep your balances under 30% of your business available trade and vendor account levels.

8. Grow and Diversify Your Credit

  • Over time, diversify your credit profile by taking out a business line of credit, a small loan, or leasing equipment. The mix of credit types adds to your business creditworthiness.  Using Fundability can guide you through this process and help you keep track of all of the different types of credit you have.

9. Maintain Good Personal Credit

  • Especially when starting out, lenders may look at your personal credit as well. Ensure that you have good personal credit to help secure initial business credit.  A personal credit score of 700 or higher is best practice.

10. Monitor Your Progress

  • Keep an eye on your business credit reports from Dun & Bradstreet, Experian, and Equifax Business. You can dispute errors and ensure your business is accurately represented.  Do this using Fundability

By following these steps and being consistent with financial discipline, you'll build solid business credit, helping your company access better financing and growth opportunities in the future.

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