Like individuals, businesses have their own credit histories that can affect whether their owners will be approved for credit cards or other lines of credit, whether a business will be approved for certain loans, and more.
Having a high business credit score is always better than having a low score, as it provides you with more flexible financing options and opportunities to expand or evolve your business to adapt to new market shifts.
However, new businesses always start out with little to no credit history. So it pays to know the top ways to build business credit quickly, especially if you want your business to thrive rather than just survive.
How is business credit score calculated?
You likely already know that your personal credit score ranges from 300 to 850. But business credit scores rise and fall along a different scale: they can go from 0 to 100.
As with personal credit scores, which are derived from FICO scales and measurement metrics, business credit scores are calculated by looking at the following:
- Payment history: Regarding bills for rent, utilities, and credit card payments
- Expense history: Businesses that spend a lot of money frequently have lower credit scores than businesses that spend money regularly but modestly
- Repayment pattern: If a business pays down its debts and bills regularly, it will have a higher credit score
Furthermore, business credit scores are compiled by three major credit bureaus, two of which also compile personal credit scores: Experian and Equifax. The third business credit bureau is Dun & Bradstreet.
The big thing to remember is that business credit ultimately increases or decreases based on the same financial principles as personal credit. If you are responsible and trustworthy with your finances and don’t overextend your finances with risky loans or purchases, your credit score will gradually go up. The reverse is true if you are irresponsible or untrustworthy with your finances.
How to build business credit fast
Luckily for new business owners, there are a variety of strategies to leverage if you want to build business credit quickly rather than over months or years. Let’s break them down one by one.
Note that your credit score will go up even more quickly if you use all of these strategies in conjunction with one another, instead of focusing on just one or two.
Get an EIN
An EIN or employer identification number is necessary to get a business credit score in the first place. If you don’t already have one for your business, you should get one ASAP, even if you are a sole proprietorship. An EIN is also necessary to open a business bank account and to hire employees for your business — a crucial requirement if you ever want to expand.
Fortunately, it takes only a few minutes to apply for an EIN. You can do so on the IRS website. Registering for an EIN is free as well, so there’s no reason to delay doing this.
Open a business bank account
You’ll also need a business bank account to start building up a credit history. A business bank account is a dedicated bank account (sometimes with special perks or interest rates) that you should use for business expenses and transactions only.
It’s meant to keep your personal and business finances separate, both for building credit history and for making taxes easier at the end of your fiscal quarter or year.
Open a business bank account at any local branch or with the bank that also manages your personal bank account(s).
Get a business line of credit
With an EIN and business bank account, your business can finally start building credit. While it will naturally start to build this as you pay bills or make payments using your business bank account, you can accelerate your credit score’s rise by securing at least one business line of credit.
This can come in two forms: a business credit card or a business loan.
Business credit cards are best for regular expenses, such as purchasing office supplies or equipment for your enterprise. Business loans are best for purchasing office space or making larger buys, especially for expansions. Either way, get at least one business line of credit and use it to show lenders that you can be trusted.
If you can’t qualify for a regular credit card, consider a secured credit card. These require security deposits, but they don’t have credit score requirements. As a result, they can be a good way to start building credit if you have no business credit history yet.
Make payments early and in full
When you have your business line of credit, be sure to make any payments early and, if possible, to pay down any debts or loans in full.
For example, say that you have a business credit card and take out $5,000 in office supplies for a new office space you are renting from a commercial landlord. After making your purchases, try to pay down the entire $5,000 balance before the end of the billing cycle.
This shows the credit card holder that you are very trustworthy when it comes to credit, and this will significantly bump up your business credit score.
Loans work the same way. If you pay them down aggressively, such as by making more than the minimum payment and paying down the full loan balance before the term ends, your credit score will increase more than if you just made a minimum payment. Another reason not to make minimum payments is that you’ll cost yourself more money in the long run through interest accrual.
Only borrow from lenders that report to credit bureaus
Speaking of loans, you can accelerate the rise of your business credit score by only taking out loans from lenders that report to business credit bureaus. Not sure whether a lender does this? Ask them upfront — they should tell you right away which, if any, credit bureaus they report to.
It’s important to use these kinds of lenders because they send regular updates to credit bureaus that will, in turn, update your credit score as soon as they get new information. If you use a lender that doesn’t report to credit bureaus, the bureaus will still eventually get information about your loan, but it could take many more months.
Keep good relationships with suppliers
If your business has a relationship with one or more suppliers or vendors for resources or products, try to keep your relationships with those suppliers in good standing.
Why? Because the more things you purchase from suppliers, the more business expenses you’ll have on your record, and the more your business credit will build up. As you cultivate positive relationships with your vendors and regular suppliers, you’ll receive discounts on orders, too. Most important of all, a more consistent purchasing history looks better on your credit report and can lead to a better credit score overall.
What exactly is business credit?
Business credit is a distinct credit score assigned to your business’s EIN or employer identification number. Your business credit score goes up or down based on whether you pay your bills on time, how and when you spend the credit line on a business credit card, whether you pay down the debt promptly, and more.
Is business and personal credit the same thing?
No. Personal credit is attached to individual Social Security numbers and is based on personal spending habits and bills. Business credit scores are only assigned to registered businesses and only change when specific business expenses and bills are made or paid, respectively.
How can you tell what your business credit score is?
You can pay to see a company credit report at any of the three major credit bureaus: Experian, Equifax, or Dun & Bradstreet. You cannot, unfortunately, get a free credit report like you can with your personal score.
How often are business credit scores updated?
All the time. The more financial information the credit bureaus have to work with, the more frequently they will update your business’s credit. Therefore, the more financial activities you undergo, such as making purchases, opening lines of credit, and more, the faster your credit score will improve.
How we determined great ways to build credit
We first looked into the major factors that affect business credit, which are similar to the factors that affect personal credit.
Then we determined the best ways in which you can show credit bureaus and lenders overall creditworthiness and trustworthiness in the areas of finance and lending. We compiled these into the tips above for easy perusal. However, remember that building your credit involves leveraging all of the above strategies, not just one or two.