How to Build Business Credit: 11 Easy Steps

credit card graphic

Ever started a business tango, only to have your personal credit step on your toes? Let’s fix that dance, pronto! As a dynamic duo who’s built business credit for numerous ventures, my wife and I mastered the intricate steps of this financial waltz.

Uncover the secrets of how to build business credit, giving your dreams the freedom to twirl into reality, without tying your personal funds into knots. Don’t just sit on the sidelines. It’s time to lead your business to the dancefloor of success!

What is Business Credit?

Business credit often likened to an entrepreneurial superpower, is a credit history associated solely with your company rather than your personal credit.

It measures your business’s financial health and reliability in repaying debts, often used by lenders, suppliers, and other business partners to assess risk.

Building business credit involves systematically establishing and maintaining a positive credit record for your company, without the involvement of your personal credit.

This provides a cushion of financial flexibility, allowing your business to grow and flourish independently from your personal finances, and keeping your personal assets safe in case of business setbacks.

Reasons You Need to Know How to Build Business Credit

Understanding how to build business credit is a fundamental skill in entrepreneurship, playing a pivotal role in the growth and sustainability of your business.

Here’s why establishing strong business credit is an essential task for your enterprise:

  • Better Financing Options: Solid business credit can unlock access to larger amounts of financing at more favorable terms.
  • Protection of Personal Assets: It separates your personal credit and assets from your business, providing a shield against business-related financial risks.
  • Trustworthiness to Partners: It demonstrates to potential partners, suppliers, and clients that your business is financially stable and reliable.
  • Financial Safety Net: It helps your business withstand unexpected costs and financial challenges.

By utilizing our proven method, you can navigate the process of building business credit with clarity and confidence.

We provide a step-by-step guide, honed from our extensive experience, to lead your business towards financial independence and a robust future.

We’ve navigated these waters before and we’re ready to share our wealth of knowledge with you!

Step-by-Step Instructions to Build Business Credit

Image of map

Our journey together involves a clear, comprehensive process that we’ve uniquely designed and fine-tuned based on our vast experience. It’s not just about understanding how to build business credit but mastering a strategy that works for a myriad of business models.

Here are the pivotal steps we’ve identified:

  1. Foundational Fortitude: Establish your business as a separate legal entity.
  2. EIN Enlightenment: Obtain your Employer Identification Number (EIN).
  3. D&B Dance: Register your business with Dun & Bradstreet to get a D-U-N-S Number.
  4. Credit Vendor Voyage: Start building your business credit history by working with suppliers and vendors that report to business credit bureaus.
  5. Business Card Quest: Apply for a business credit card.
  6. Timely Repayment Ritual: Pay your bills on time, every time.
  7. Monitor & Master: Regularly check and maintain your business credit report.

Now that we’ve laid out the roadmap, it’s time to embark on this journey together.

We’ll delve into each step with precision and practical insights, ensuring you’re well-equipped to construct a strong business credit profile. Let’s propel your business towards its prosperous future!

Step 1: Foundational Fortitude – Establish Your Business as a Separate Legal Entity

Image of rock climbing

Establishing your business as a separate legal entity is the cornerstone for building business credit.

This step is about setting up a strong foundation from which all your business credit endeavors will grow.

To execute this step:

  1. Choose Your Business Structure: Decide whether your business will be a Sole Proprietorship, Partnership, Limited Liability Company (LLC), or a Corporation. Each structure has its own advantages and potential drawbacks, so it’s important to choose the one that aligns best with your business goals and needs.
  2. Register Your Business: Once you’ve chosen a structure, you need to register your business with your state’s Secretary of State’s office. The process may vary slightly from state to state but typically involves filing certain documents and paying a fee.
  3. Get Your Business Name: Your business name should be unique and not infringe on another company’s trademark. Registering your business name will make it official and legally yours.

Remember, having a separate legal entity not only gives your business a professional appeal but also separates your personal finances from your business finances, thus paving the way for building business credit independently.

Step 2: EIN Enlightenment – Obtain Your Employer Identification Number (EIN)

Your Employer Identification Number (EIN), also known as a Federal Tax Identification Number, is the business equivalent of a Social Security Number.

It’s crucial for separating your personal and business finances, and is required for most forms of business credit.

To execute this step:

  1. Check the Requirements: Not all businesses require an EIN. Sole proprietors and single-member LLCs without employees can use the owner’s Social Security Number for tax purposes. However, if you plan on hiring employees, setting up a pension plan, or filing tax returns for employment, excise, alcohol, tobacco, or firearms, you need an EIN.
  2. Apply for an EIN: You can apply for an EIN for free through the IRS website. The process is relatively straightforward and involves filling out an online form. If you prefer, you can also apply by mail or fax.
  3. Store the EIN Safely: Once you receive your EIN, ensure to store it safely. You will need it for various business activities like opening a bank account, filing tax returns, and applying for business permits and licenses.

Acquiring an EIN is a significant step in building your business credit. It differentiates your business as a separate tax entity, making it possible to build a credit profile distinct from your personal one.

Step 3: D&B Dance – Register Your Business with Dun & Bradstreet to Get a D-U-N-S Number

Image of person sitting with a laptop

Dun & Bradstreet is one of the major business credit bureaus that maintain credit profiles of businesses.

A D-U-N-S Number is a unique nine-digit identifier for your business that’s used by this bureau to track your company’s credit history.

To execute this step:

  1. Check for Existing D-U-N-S Number: Before you apply for a new number, make sure your business doesn’t already have one. If your business has applied for federal grants or contracts, it likely has a D-U-N-S Number.
  2. Apply for a D-U-N-S Number: If your business doesn’t have a D-U-N-S Number, you can apply for one free of charge on the Dun & Bradstreet website. The process requires you to provide basic information about your business, such as its legal name, physical address, and industry.
  3. Update Your Business Information Regularly: Ensure your business information with Dun & Bradstreet is up-to-date. Any changes in your business, such as relocation or change of industry, should be promptly updated.

Registering your business with Dun & Bradstreet and obtaining a D-U-N-S Number is a crucial step in building business credit.

This number allows lenders and suppliers to access your business credit report, making it easier for you to secure financing or negotiate better terms with suppliers.

Step 4: Credit Vendor Voyage – Start Building Your Business Credit History by Working with Suppliers and Vendors That Report to Business Credit Bureaus

In this step, you’re laying the initial groundwork for your business credit history.

Establishing relationships with suppliers and vendors who report your payment history to business credit bureaus is a practical way to begin.

To execute this step:

  1. Identify Vendors That Report: Find suppliers and vendors that report transactions to business credit bureaus. This can be as simple as asking them directly, or you can search for lists online. Remember, not all suppliers or vendors report to credit bureaus, so it’s important to choose those that do.
  2. Open a Credit Account: Once you’ve identified these vendors, open a line of credit with them. They’ll provide you with goods or services upfront, allowing you to pay the invoice later, usually within a specified timeframe such as 30 or 60 days.
  3. Make Timely Payments: Ensure to pay your invoices on time, or even early if possible. Your payment behavior is reported to the credit bureaus, and prompt payments help build a positive credit history.

By strategically choosing to work with vendors that report to credit bureaus, you’re actively creating a credit history that reflects your business’s financial responsibility and reliability, thus laying a solid foundation for your business credit profile.

Step 5: Business Card Quest – Apply for a Business Credit Card

image of business credit

A business credit card is an essential tool for building business credit. Not only does it help separate your personal and business expenses, but it also allows you to build your business credit history each time you use it and make payments on time.

To execute this step:

  1. Choose the Right Card: Do your research and choose a business credit card that fits your needs. Consider factors such as the interest rate, annual fee, credit limit, and any rewards or benefits that come with the card.
  2. Apply for the Card: Once you’ve selected a card, submit your application. You’ll need to provide details about your business such as your EIN, D-U-N-S Number, and financial information.
  3. Use Your Card Wisely: Once approved, start using your card for business expenses. Be mindful of your credit utilization rate (the ratio of your card balance to your credit limit) – keeping it below 30% is generally advised but with higher limits, we recommend below 10%.
  4. Make Timely Payments: Just as with your suppliers and vendors, making full, on-time payments is crucial to building a good credit history.

Obtaining and responsibly managing a business credit card is a key step in building business credit.

Each on-time payment boosts your business’s creditworthiness, putting you in a stronger position for future financial endeavors.

Step 6: Timely Repayment Ritual – Pay Your Bills on Time, Every Time

Timely repayment of your debts is arguably one of the most significant factors in building a robust business credit profile.

Your payment history accounts for a substantial portion of your credit score, making it essential to establish a habit of paying all your bills on time.

To execute this step:

  1. Understand Your Payment Terms: Be clear on the payment terms of all your credit accounts. Whether it’s a vendor credit line, a business loan, or your business credit card, know when your payments are due.
  2. Set Up Reminders or Auto-payments: To ensure you never miss a payment, set up a system of reminders or, if possible, set up automatic payments. Most banks and credit card providers offer these services.
  3. Maintain Sufficient Funds: Always ensure you have sufficient funds in your account to cover your bills. Bounced checks or declined payments can negatively impact your credit score.
  4. Prioritize Payments: If you find yourself in a situation where you can’t pay all your bills, prioritize those that report to credit bureaus to minimize damage to your business credit score.

Building a strong credit profile is much about demonstrating reliability.

By consistently meeting your financial obligations on time, you’re proving to lenders and credit bureaus that your business is trustworthy and financially responsible.

Step 7: Monitor & Master – Regularly Check and Maintain Your Business Credit Report

Monitoring your business credit report regularly is crucial in maintaining a healthy credit profile. It allows you to track your progress, spot any errors, and identify areas of improvement.

To execute this step:

  1. Obtain Your Credit Report: Major business credit bureaus like Dun & Bradstreet, Equifax, and Experian provide business credit reports, often for a fee. Some services offer regular monitoring and alerts about changes in your credit report.
  2. Review Your Report Regularly: Make it a habit to check your business credit report at least quarterly. Look for any changes in your score and delve into the details to understand what’s impacting it.
  3. Dispute Any Errors: If you spot any inaccuracies in your report, such as incorrect payment history or outdated business information, dispute them immediately with the credit bureau. Errors can significantly affect your credit score, so it’s essential to get them corrected.
  4. Identify and Address Issues: Use the insights from your credit report to identify areas where you can improve. If late payments are pulling your score down, for example, you may need to revisit your “Timely Repayment Ritual”.

Consistent monitoring and maintenance of your business credit report not only keep your credit score in check but also give you a clear understanding of how your financial behavior affects your business’s creditworthiness.

It’s a continuous process but one that keeps your business’s financial health in the best shape possible.

Key Considerations For Successfully Building Business Credit

Business credit Blueprint graphic

Building business credit is a marathon, not a sprint. It requires patience, consistency, and a clear understanding of your financial obligations.

Always remember, the actions you take today, whether it’s paying a bill on time or updating your business information with credit bureaus, will impact your business’s creditworthiness down the line.

Also, it’s important to remember that not all vendors, lenders, or credit card providers report to business credit bureaus.

So, as you choose your financial partners, keep in mind those that do report will help you build your business credit profile faster and more effectively.

Taking it to the Next Level: How to Go Beyond Building Business Credit

Once you’ve established a strong business credit profile, you might wonder, what’s next?

Now it’s time to leverage your creditworthiness to fuel your business growth. You can consider applying for larger business loans, securing more favorable trade terms with suppliers, or even investing in bigger business ventures.

Also, consider diversifying the types of credit you use.

Mix in some installment loans, such as equipment loans or commercial auto loans, with your revolving credit.

Having different types of credit can enhance your credit profile and give you access to more capital.

Alternatives to Building Business Credit

While building business credit is a crucial aspect of business growth, there are alternatives if you’re unable to do so immediately.

Personal loans, crowdfunding, or seeking investments from venture capitalists or angel investors are viable options.

Another route is trade credit, where suppliers extend credit to you based on your agreement to pay at a later date. You could also explore microloans and grants specifically tailored for small businesses.

Remember, these alternatives should ideally be temporary while you work on building your business credit.

Wrapping Up and My Experience With Building Business Credit

Business credit blueprint at desk

In conclusion, building business credit is a step-by-step process that requires time, patience, and strategic financial planning.

As experienced business owners who’ve built business credit for multiple businesses, we can attest to the power of a strong business credit profile.

It’s opened doors to capital, enabled us to secure favorable payment terms, and helped our businesses grow and thrive.

Remember, the journey of building business credit is a critical part of your business’s financial journey. By following these steps, you’re not only establishing your business’s financial identity but also paving the way for sustainable growth and success.