How to build business credit in 10 steps

Like personal credit, building your business credit is important. Business credit tells a story about how trustworthy your business is to lenders and protects your personal assets. It can also help you establish and grow your business.

You should begin building your business credit rating as soon as your business is up and running. And if you’re already going, it’s never too late to start. 

Knowing how to build business credit will make it easier to get small business loans and convince suppliers to extend credit. Let’s look at the ten essential steps to setting your company up for success when building business credit:

1. Register your business
2. Get an EIN
3. Open a business bank account
4. Separate your personal and business finances
5. Open a credit file
6. Get a business credit card
7. Borrow from lenders
8. Open vendor lines of credit
9. Pay your bills on time
10. Monitor your credit

1. Register your business 

It can be difficult to keep your business and personal finances separate. Building business credit is one reason why registering your business is important, whether you’re a sole proprietor or have business partners. 

You’ll want to register your legal business name with the appropriate government agencies at the local, state, and federal levels. For the most part, your state’s Secretary of State office or agency will have the requirements for registering your business.

2. Get an EIN

An employee identification number (EIN) is a 9-digit number you get from the IRS. It’s like a Social Security number for businesses and makes it possible to open a bank account. You’ll also need an EIN if you plan to hire employees or need to apply for certain licenses and permits. 

Note that many lenders and vendors also require you to have an EIN when applying for business loans. For sole proprietors, using an EIN instead of your Social Security number also provides additional privacy protections when conducting business. 

To obtain an EIN for your business for free, visit the IRS website and apply.

3. Open a business bank account

Opening a business bank account involves several steps, starting with choosing the right bank for your business. When selecting a bank, consider factors such as: 

• Bill pay 
• Minimum balance fees
• Cash flow monitoring tools 
• Opening deposit requirements
• Invoicing and payment acceptable features 

Having a business bank account is key to separating your business and personal finances. It helps track business expenses, simplifies tax filing, and clearly distinguishes between personal and business finances.

4. Separate your personal and business finances

A business bank account is key to keeping personal and business funds separate. You can further simplify tax preparation with dedicated accounting software for your business.

There are several reasons you’ll want to manage your business finances separately: 

• Protects personal credit: You can avoid having to co-mingle personal credit, personal debts, and personal assets with your business.
• Easier financing: Having a business credit score and profile increases your chances of securing loans and lines of credit for small businesses. 
• Increases borrowing power: Businesses can typically get larger credit limits and loan amounts than individuals. 
• Can boost company value: Creditworthy businesses have an advantage in financing as it makes your business more attractive to potential buyers, investors, or lenders. 

If your business is new or lacks a credit profile, lenders may require you to personally guarantee your business debts, and the business loan can affect your personal credit.

5. Open a credit file

There are three key business credit bureaus, including Experian, Equifax, and Dun & Bradstreet. Experian and Equifax will open a credit file for you when creditors or lenders start reporting your accounts. However, Dun & Bradstreet requires you ‌to apply for a DUNS number before you can build a credit file with them.

You can request a D-U-N-S Number for free from Dun & Bradstreet. The DUNS number is a nine-digit identification number for your business.

6. Get a business credit card

A business credit card is a valuable tool for building and improving your business's credit profile. By using a business credit card responsibly, you can establish a positive payment history, boosting your business credit score. 

When it comes to business credit cards, there are options for both secured and unsecured cards. Secured business credit cards require a security deposit, while unsecured cards do not. Businesses can use both types of cards to cover various business expenses, such as office supplies and travel.

7. Borrow from lenders

Traditional banks typically report to all major business credit bureaus and have strict reporting policies. This means that business lines of credit or loans from a traditional bank will likely affect a business's credit score across all bureaus.

Online lenders also report to business credit bureaus, but their policies may vary. Some may report to all major bureaus, while others may only report to one or two. Merchant cash advance companies, on the other hand, may not report at all. 

8. Open vendor lines of credit

Vendor financing is a great way to get funding for your business, and you can benefit from building business credit. Setting up credit accounts with your business partners and suppliers allows you to make purchases on credit.

However, you can be doing everything right in terms of payments, but it won’t reflect in your score if vendors do not report to the bureaus. Verify that the vendors you work with report payments to credit bureaus—and if not, encourage them to do so.

9. Pay your bills on time

Factors such as the frequency of late payments, the length of delinquencies, and the number of accounts in good standing all contribute to your business credit score. Payment history is a key factor in building a strong business credit score. Late payments can lead to higher interest rates on loans and lowered credit limits. 

On the other hand, consistently making on-time or early payments can help improve your credit score, making it easier for your business to access financing and better terms. Streamlining your bill pay can ensure you collect funds and make payments on time.

10. Monitor your credit

Businesses should monitor their business credit regularly, such as once a quarter, to ensure it’s current and accurate. Check your credit report with the main credit bureaus and proactively address any errors or discrepancies. 

You’ll also be able to see if your credit score is declining for legitimate reasons, such as late payments or overuse of credit, and take steps to change that behavior. Also, keep them up-to-date on any changes to your business, such as a new address or contact information. 

In addition to keeping a close eye on your credit information, you can also proactively increase your score.

Other ways to improve your credit include: 

• Pay your bills on time: Timely payments demonstrate reliability and can positively impact your credit score.
• Keep credit utilization low: Aim to use only a portion of your available credit, such as 30%. 
• Work with vendors who report: Establish trade lines: Building relationships with vendors and suppliers who report to business credit bureaus can help establish a positive credit history.
• Keep accounts open: Closing accounts can hurt your score. If possible, keep accounts open by using them periodically. 

When just starting, it’s OK to start small with credit accounts and gradually build a positive credit history for your business.

What are your funding options?

While starting a business with no money is possible, it ‌can be easier to accelerate growth with access to business credit. A strong credit rating is critical for small businesses. These short- and long-term steps on how to build business credit can help you have more options available when you decide to seek additional funding. 

Term loan financing options like QuickBooks Term Loan give you fast, flexible funding with the benefit of building business credit—while not affecting your personal credit.