As a small business owner, you’ve likely given more than a passing thought to how you can build business credit.
Your business credit profile is one measure of the financial health of your company, and a reflection of how your business meets its financial obligations. Establishing a credit history and building good business credit are essential to the success of your business.
If you’re wondering how to build business credit, it’s important to understand one of its key contributing factors: your business credit score. If you’re seeking financing, showing your creditworthiness will be a big part of applying and getting approved.
But your business credit profile (and business credit score) come up in more situations, too. For example, if you’re looking to negotiate good terms with your suppliers, get the best lease on commercial property, or secure good insurance premiums, your good business credit could help.
In a nutshell, good business credit makes for a sustainable, growth-oriented business. Here are some things you can do to help build good business credit.
6 things you can do to establish and build your business credit
1. Check your personal and business credit files
The first thing you want to do is check your personal and business credit score. For your personal score, go to AnnualCreditReport.com — a free source of credit reports verified by the government and operated by the three national reporting companies: Equifax, Experian, and TransUnion. By Federal law, you are entitled to a free copy of your credit report from the credit bureaus every 12 months.
Always check your report for errors. Look for any inaccuracies in every section, including your personal information, SSN, accounts, and loans. Report any incorrect information to the business that issued the account or the credit reporting company that issued the report.
Next, check out your business credit report. You can request these from Dun & Bradstreet, Experian, and Equifax. If you don’t have a credit file with these agencies or are new to business, you can set one up by registering for a D-U-N-S number (used to identify companies in the U.S.) with Dun & Bradstreet.
2. Add trade references to your credit file
Trade references are vital to a strong business credit score. These reflect your good record of payments with suppliers and vendors. Some will be proactive about sharing this information with the credit reporting agencies, but they aren’t required to do so. You can also add them on your own.
Your score is determined by a few things, including the number of trade experiences you have, outstanding balances, payment habits, and demographics (such as years on file, business size, etc.)
3. Establish credit with vendors and suppliers who report to credit bureaus
Not all vendors, suppliers, businesses, and others with whom your business interacts will report to the credit bureaus. But working with those who do is a way to build business credit and boost your business credit score. A history of responsible payment (on time, or even early) builds good business credit, so ask your vendors and others whether they report your payment activity. Your strong credit rating may help you increase your borrowing power, obtain more favorable financing terms from lenders, or increase the likelihood of other businesses working with you.
4. Get a business credit card
Business credit cards can be an indispensable asset for any business. Of course, you can use this card to pay for business expenses such as supplies and equipment, and most cards come with perks such as cash back or travel rewards. But equally important, if you use it responsibly and reliably pay on time, a business credit card can also be leveraged to build strong business credit history and a solid credit rating, potentially helping your business qualify for additional — and better — financing options in the future, should you need it.
Do keep in mind that if you’re looking to finance large purchases of equipment or to capitalize on a timely but costly opportunity for your business’s growth, a business credit card likely will not be sufficient for your needs. A better, more flexible financing option for such purchases is a business line of credit, which offers a revolving balance that replenishes as you pay off what you’ve used. If you’re looking for a line of credit for your business, you may want to consider a Fundbox Line of Credit.
5. Make payments to creditors on time or early
Your payment habits have a big impact on your credit score. If you pay before a due date, or even 15-30 days in advance (cash flow permitting), you’ll improve your Dun & Bradstreet Paydex score. The Paydex score ranges from 1–100 and is an important indicator of a business’s past payment performance. The higher the Paydex score, the greater the likelihood that a business will pay its debts on time.
6. Monitor your business credit reports
Now that you’ve spent so much time building your credit, keep an eye on it. As noted, you are able to access your personal credit report for free on an annual basis, and it’s a smart idea to do just that.
You may want to keep even closer track of your business credit report. Here are 5 places you can go to check your business credit. But you most likely want to check your business credit report much more frequently than once per year. If you want to check it on a monthly basis, look to any of the top business credit agencies (Experian, Equifax, and Dun & Bradstreet). They all offer a range of business credit monitoring services, but be aware that you will likely have to pay for this, and prices vary. However, monitoring is important if you’re actively looking to build credit. Monitoring will let you know when new activity is detected and allow you to stay on top of any mistakes.
Demonstrating responsible management of your business credit will help provide your business with more options, from availability of financing to favorable loan terms to access to suppliers and vendors. Simply put, building strong business credit is a key factor in establishing and growing your successful small business.
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.