Many people already know how to check and improve their personal credit scores, but the world of business credit scores can feel like an entirely new frontier. You might not know what’s considered when a bureau calculates your business credit score or when a potential investor or lender pulls up your business credit report, or how your business credit score actually affects your company. Here’s a breakdown of exactly what factors contribute to your business credit score, how to build and improve your business credit, and how to build business credit quickly to strengthen your chances of being approved for loans and credit cards.
The Importance of Building Business Credit
Your business credit score is an extremely important aspect of your business’ ability to obtain the funding you need to expand and grow to scale. Opening a dedicated business bank account is a foundational step in building business credit. When lenders are considering your application — whether you’re applying for a line of credit, a credit card, or a business loan — your business credit score can be a major factor as to whether or not you’ll be approved.
How Business Credit is Determined
Credit bureaus calculate a business credit score by taking multiple factors into consideration, which can be used to gain an understanding of your business’ overall credit worthiness. While each credit bureau utilizes its own unique scoring system, all of them will take the following into account:
- Your business’ age, revenue, and size
- Legal judgments like bankruptcies and liens
- Debt and debt usage
- Payment history
- Risk of failure in your industry
It is important to regularly review your business credit file to ensure accuracy and address any discrepancies.
Lenders and investors use your credit score to judge whether or not they should provide funding to your business. Your business credit score provides banks, credit unions, and other financial institutions with a big-picture view of your business’ fiscal stability, so it’s critical that your score is as high as possible.
3 Best Practices for Building Business Credit
There are numerous ways you can strengthen your business credit, but these 3 solid starting points are the perfect place to start.
Build Relationships with Suppliers
Your suppliers and vendors play a crucial role in improving your business credit. When you regularly make purchases from suppliers and pay them on time, that reflects positively on your score. Be sure to check that your vendors report your payments to business credit bureaus, so that your fiscal responsibility and consistency is noted in your business credit score.
Pay on Time
Paying your bills past due is one of the worst things you can do for your business credit score. Repeatedly paying your invoices late will mean that you have a poor credit score, which negatively affects your prospects of being approved for loans, lines of credit, and more. Do whatever it takes to ensure that your vendors and suppliers receive timely payments from you, each and every month.
Engage in Business Credit Monitoring
This means staying on top of exactly what’s happening with your business credit score, by periodically checking if your score has gone up or down. There are a number of business credit monitoring services you can use, offered by major credit bureaus such as Dun & Bradstreet, Experian, and Equifax. It is important to regularly check your business credit reports from different business credit agencies and business credit reporting agencies to ensure your information is up-to-date and accurate.
How to Get an EIN
Also known as the Federal Tax Identification Number, your EIN (Employer Identification Number) is a nine-digit number used by the federal government to identify your business for tax purposes. According to the IRS, you qualify to apply for an EIN online if your business is located in the United States or U.S. Territories, and if you have a valid Taxpayer Identification Number, such as a Social Security number. You can apply for your EIN online here, and should your application be approved, you should receive your EIN immediately after submitting your documentation.
How do I Apply for a DUNS Number?
The Dun & Bradstreet DUNS Number is a personal nine-digit identifier for businesses. You can think of it like a social security number for your business – no two businesses will have the same number, and it can be used to verify the identity and ownership of your venture. Your DUNS number can be used to check your business credit history and score.
Reporting your business information to a business credit bureau like Dun & Bradstreet is crucial for building a positive payment history and improving your business credit score.
Obtaining a DUNS number is relatively simple. You can apply online and the process is free. After submitting your application, a representative from Dun & Bradstreet will get in touch with you. You should receive your DUNS number in less than a month. If you need your number sooner than that, you can pay $229 to have the process expedited, which shortens the process to five working days. It’s critical to note that in order to be approved for a DUNS number, you must have already established your business as a legal entity, such as an S-Corp, C-Corp, or LLC.
Steps to Open a Business Credit Card
If you’re ready to obtain a business credit card, here are three steps to follow.
- Check Your Eligibility
This is the time to review your business credit score and understand where you’re likely to be approved. If your business credit score isn’t great, it may be advantageous to wait until you can improve it, and then apply for your business credit card. Additionally, monitoring your personal credit score is crucial as it can affect your chances of being approved for a business credit card.
- Shop Around
Each credit provider has its own offers for borrowers, and you may find the terms and conditions offered to you by one lender are more favorable than at a competing company. Take your time to weigh your options and find the offer that makes the most sense for your business.
- Gather Your Documentation and Apply!
Applications will ask for details such as your business’ name, address, annual revenue, EIN and more. Have documentation supporting this data on hand when applying. You’ll also have to provide your personal data, and it’s important to note that spotty personal credit history will likely affect your chances of being approved for business credit. If you don’t get approved for a business credit card, you still have other options available. You can pursue a business line of credit, or explore the possibility of putting up collateral or signing a guarantee that will provide security to the lender.
