What is Business Credit and Why Does it Matter?

Let’s take a moment to break down exactly what corporate credit is, and why it’s something you can’t afford to ignore.

Business credit is a financial profile that reflects your company’s ability to manage and pay off debt. Think of it as a report card for your business. Just like your personal credit score impacts your ability to secure loans, your corporate credit score determines how easily you can access financing, negotiate better terms with vendors, and secure lower-interest loans.

But why is it essential to build business credit? Let’s look into it. 

• By building credit, you protect your personal assets. Your business’s financial health won’t affect your personal savings or property.
• A strong credit score helps you access loans and lines of credit, improving your chances of securing financial resources for growth.
• With good credit, you can negotiate better payment terms, discounts, and extended credit with suppliers.

Now, let’s dig into the 6 crucial steps to build business credit from scratch: 

6 crucial steps to build business credit from scratch

Step 1: Establish Your Business Legally

Before you can start building corporate credit, your business must be legally established. Think of this as laying a solid foundation for your company’s future. If your business isn’t set up correctly, building credit is nearly impossible. So, here’s what you need to do: 

• Choose the Right Business Structure

The first step is choosing the right legal structure, usually an LLC (Limited Liability Company) or Corporation. These structures create a legal separation between your personal and company finances, protecting your personal assets. A sole proprietorship doesn’t offer this protection, making it riskier and harder to build business credit. 

• Get Your EIN

Next, you need an EIN (Employer Identification Number), often referred to as your business’s Social Security Number. This unique number is essential for tax purposes, hiring employees, and, importantly, building credit. With an EIN, your personal credit stays separate from your business’s financial dealings, which is vital for establishing corporate credit.

• Register for a DUNS Number

Finally, obtain a DUNS number from Dun & Bradstreet. Credit bureaus use this number to track your business credit. Without it, your business won’t have a credit history, making it hard to establish a credit profile.

Explore our EIN-Only Credit Guide for more on using your EIN for building credit.

Step 2: Open a Business Bank Account

Opening a business bank account may seem simple. But it is a critical step in building your business’s credibility. Having a separate account not only makes your finances easier to manage, but it also shows potential creditors that you mean business. Here’s what you need to do: 

• Build Professionalism and Trust

When you open a business bank account, it shows that your business is serious. By keeping your personal and business finances separate, you build trust with suppliers, lenders, and other partners. They will see your company as more professional and organized.

• Choose the Right Bank

Pick a bank that offers the features your business needs. Look for low fees, easy integration with accounting software, and good customer service. A bank that can provide you with business loans or lines of credit down the line is also a plus.

• Make Sure It’s Tied to Your EIN

This is a crucial step. Make sure the account is in your business’s name and tied to your EIN. Using a personal account for business transactions can make it much harder to establish credit and separate your personal finances.

Having a business bank account is now a necessity to build business credit. It creates a clear, professional financial record that will make everything else easier.

Step 3: Get a DUNS Number and Register with Business Credit Bureaus

Now, let’s get into the details of getting a DUNS number. 

Obtaining a DUNS number is crucial for getting your business on the radar of major credit bureaus and establishing a solid credit profile.

A DUNS number (Data Universal Numbering System) is a unique identifier assigned by Dun & Bradstreet. Think of it like your business’s fingerprint, helping lenders and vendors track your financial activity. This number ensures that your business is recognized by the major credit bureaus, Dun & Bradstreet, Equifax, and Experian. Without it, your business cannot develop a credit history.

How to Get Your DUNS Number?

Head to Dun & Bradstreet’s website to apply for your DUNS number. It is a free process that typically takes just a few days. Once you have it, your business is officially recognized by credit bureaus.

Why Register with Credit Bureaus?

After obtaining your DUNS number, it’s essential to register with credit bureaus. This allows vendors and lenders to assess your creditworthiness when you apply for credit or loans.

Once registered, your business has a foundation to grow its credit.

Step 4: Open Vendor Credit Accounts

One of the best ways to build business credit early is to start with vendor credit accounts. These accounts allow you to purchase goods or services from a vendor and pay for them later. Think of them as your first business credit lines, small, manageable accounts that can grow over time.

Here are some important details about vendor credit accounts:

• Vendor Credit Accounts Establish Your Credit History

For many businesses, vendor credit accounts are the easiest and fastest way to start building a credit score. Vendors report your payment history to credit bureaus, which helps establish your credit. By paying on time, you demonstrate reliability, which helps boost your credibility.

• What are Net-30 Vendor Accounts?

One of the most common types of vendor credit is Net-30. These accounts allow you 30 days to pay back your balance after making a purchase. Net-30 accounts are typically easier to obtain for new businesses, and they are a great way to start building credit. Here are some popular vendors offering Net-30 accounts:

• Uline: Packaging and shipping products
• Quill: Office supplies and business products
• Grainger: Industrial and commercial equipment
• Summa Office Supplies: Office supplies and furniture

Don’t forget to explore our Net-30 Vendor Accounts List to find great vendors to help you build business credit.

• Pay on Time, Build Your Credit

Timely payments are crucial. Late payments can negatively impact your credit score. Always ensure you pay off your vendor credit accounts on time to avoid interest and penalties.

• Choose the Right Vendors

When selecting vendors, ensure they report to credit bureaus. Building strong vendor relationships will help you secure better terms as your business grows.

Step 5: Monitor Your Business Credit Score

To monitor your credit score, start by checking your score with major credit bureaus such as Dun & Bradstreet, Experian, and Equifax. You can sign up for their services to receive regular updates and alerts. These bureaus track your credit activity and provide you with credit reports. 

Tips for improving your credit score:

• Make payments on time: Timely payments to vendors and lenders directly impact your score. So, set up reminders or automate payments to avoid late fees.
• Keep credit usage low: Avoid maxing out your credit lines. Aim for using less than 30% of your available credit to maintain a healthy score.
• Build strong vendor relationships: By establishing and maintaining strong relationships with vendors that report to credit bureaus can improve your credit history.

To better understand how your payment history affects your credit score, check out our PAYDEX Score Guide. 

Step 6: Apply for Business Credit Cards and Loans

Once you build business credit, applying for a credit card is an excellent next step. Business credit cards offer numerous benefits, from improving your credit score to simplifying your financial management.

To apply for a corporate credit card, gather all necessary documentation, including your EIN, business bank account details, and credit history. Lenders will evaluate your credit score, so make sure it is strong before applying. Select a card that fits your business needs, offering rewards, low interest rates, or a high credit limit.

Benefits of Using Business Credit Cards:

• Manage cash flow: Business cards let you pay for purchases while deferring payment, helping you manage cash flow during slower periods.
• Build your business credit: Like vendor credit accounts, credit cards report your payment history to credit bureaus, which helps improve your business credit score.

After using business credit cards responsibly, you may want to apply for business loans. Once sufficient credit is established, loans can offer larger amounts for expansion or equipment purchases. Make sure that your credit history is strong before applying to increase your chances of approval.

If you are looking to access $100K credit without tax returns, be sure to check out our $100K Credit Without Tax Returns Guide for tips on securing funding without traditional paperwork.

Conclusion

To build business credit from scratch is an essential step towards financial independence and growth. By establishing your business legally, getting a DUNS number, opening vendor accounts, and consistently monitoring your business credit score, you set your company up for long-term success. Taking the time to follow these steps ensures you’re building a solid foundation that will unlock better financing options and growth opportunities.

Now, it’s your turn to take action! Follow the steps outlined and start building your corporate credit today. 

For more guidance, explore the differences between business credit vs personal credit, or seek professional advice to fast-track your success.