The Essential Timeline For Improving Business Credit

By QuickBooks

4 min read

It’s very helpful for small business owners to have good personal credit and a strong business credit profile. Business credit matters, and there are steps you can take to improve your business’ credit score.

Why Business Credit Matters

Strong business credit often lays the foundation for a thriving small business. Among other benefits, it can lead to better terms with lenders and suppliers, because creditworthy businesses are more likely to qualify for business financing. Businesses with good credit are also often approved for larger amounts of financing with lower interest rates and more favorable payment terms from suppliers.

How to Improve Business Credit

A strong business credit score can help you to secure funding sources that have lower interest rates as well as more flexible repayment terms. Some ways of keeping track of and improving your score are outlined below.

Today: Access Your Business and Personal Credit Reports

Before you can improve business credit, you should find out where you currently stand with the main business credit bureaus: Dun & Bradstreet (D&B), Experian, and Equifax.

Business credit scores differ from consumer credit scores because each business credit bureau tracks different data and has different scoring models. D&B reports will show your payment history with suppliers (trade data). In addition to trade data, Experian and Equifax also track business loan payments.

One popular business credit score is D&B’s Paydex, which ranges from 0-100. Anything above 80 is generally considered a good Paydex score. Experian has a similar 0-100 scoring range, with anything above 80 being considered a good score. Equifax’s score ranges from 100-992, with 992 being the best score. The FICO SBSS, or Fair Isaac Corporation’s Small Business Scoring Service, draws information from both your personal and your small business’ financials, and ranges from 0-300. A FICO SBSS score in the high 200s is considered a good score.

Next, assess your personal credit report. You can get one free report every year from the personal credit bureaus: Experian, Equifax and TransUnion. Business lenders may consider both your business credit score and your personal credit score in determining your eligibility for a loan. If you find an error on your personal credit report, get it fixed with the credit agency.

Week 1: Build Business Credit

Open a business credit file if you don’t have one already. If your business could not be scored or didn’t have a report, then establishing a business credit file is a step you can take to build business credit.

You can open a credit file by getting a D-U-N-S number, a 9-digit number issued by Dun & Bradstreet used to identify your business. A D-U-N-S number, which is available for free on D&B’s website, lets suppliers, contractors, and others you do business with verify that your business exists and is operational.

Next, collect at least three trade references to report your payment history to the business credit bureaus. Vendors with the following characteristics can be helpful to have as references:

  • You have had an open account with the vendor for at least 3 months
  • You have a high credit limit with the vendor
  • You’ve had no late payments with the vendor

If your suppliers don’t report to business credit bureaus, consider switching to suppliers that do.

Next, if you don’t already have one, apply for an employer identification number (EIN). An EIN is an IRS-issued tax identification number for your business. With an EIN, you can apply for business financing and open business accounts without providing your social security number. Even though vendors and suppliers may still check your personal credit, establishing business accounts and loans under the business’ name and EIN can improve business credit.

Week 2: Build More Business Credit

Continue your credit-building momentum by opening a business checking account. Opening a separate business checking account improves business credit by separating your business finances from your personal funds. Pay vendors, business credit card bills, and business loan repayments from your business checking account.

Use business credit cards if you have them. Getting a business credit card—including a retail card from places like Staples or Home Depot—and making timely payments on it helps you build up a history of prompt payments and can improve your business credit. As an added bonus, you may earn cashback and rewards points by using a business credit card.

Next Month: Long-Term Considerations

Think about your business structure. If you’re a sole proprietorship, consult an accountant and lawyer within the next month to explore which business structure may be best for your business.

Ongoing Bass Credit

Once you’ve taken the above steps to build up your business credit, you’re in maintenance mode.

Regularly review your business and personal credit reports. If any errors show up on your reports, you can dispute them and get them fixed. If some part of your credit history, such as trade data, is sparse, then you can consider steps to build up your credit specifically in that area.

You can also familiarize yourself with the different components of your business credit report, so you can work on any factors that may be weighing down your score.

Just as with your personal finances, pay your business’ bills on time or early. Payment history is a major factor used to calculate your business credit score. The best way to keep up your business credit score over time is to pay your suppliers and creditors on time.
Want more? See: How to Get More Financial Credit for Your Business.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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