How to Build Business Credit: 5 Steps to Follow Now

A business with good credit is better able to grow than one with poor or no credit. When you have a good business credit score, you can qualify for credit terms with your suppliers and get the financing you need to pursue your business goals.

If your business is new or you’ve run into credit problems in the past, you may be wondering how to build business credit. What can you do right now to build business credit and reap the benefits of good credit in the future?

This is an important topic, and we’re here to help. Here are five steps you can follow right now to build credit for your business.

#1: Formalize Your Business Identity

The first thing you must do is formalize your business identity. This actually requires several steps, including:

  • Incorporating your business
  • Opening a business bank account
  • Establishing a business address and a listed phone number
  • Obtaining an EIN (Employer Identification Number) from the IRS

These things all indicate to potential creditors that your business is legitimate. Without them, you won’t be able to establish credit files with the major credit bureaus and build your credit.

#2: Open Accounts with the Major Credit Bureaus

Business credit is tracked by the same three credit bureaus that track your personal credit: Equifax, Experian, and TransUnion. Each company has specific requirements you’ll need to fulfill to open an account. These should be covered if you follow the steps in #1.

You’ll want to double check that each credit agency is using your full business name and has up-to-date information about your company. Failure to check can lead to multiple listings, which can dilute your credit and make it difficult for you to qualify for loans, lines of credit, and other forms of business financing.

#3: Establish Lines of Credit with Vendors and Suppliers

The next step is to establish lines of credit with your vendors and suppliers. It’s important to keep in mind that if you don’t have any business credit, you may need to start with low limits to prove to your vendors you can handle buying on credit.

It can take time to build business credit. Paying for everything with cash might seem like a good option, but it won’t help you if you need to demonstrate your ability to repay a loan. If you can’t qualify for a line of credit that’s large enough to cover your purchases, consider buying some items on credit and others with cash. Over time, you can shift the balance to credit.

The Strategic Small Business Funding Guide for Borrowing

#4: Apply for a Business Credit Card

Applying for a business credit card is the next step you should take to build credit. Credit card payments, if made on time, can help you increase your credit score and prove to lenders you can be trusted to repay your loan.

It may be helpful to apply for your business credit card with the same institution where you have your business bank account. Lenders are sometimes willing to work with existing clients to establish credit. For example, at Addition Financial, we’re always happy to sit down with our business clients and discuss their needs – and to give them the guidance and assistance they need to build their credit.

Make sure the credit card company or lender who issues your card reports your payments to the three major credit bureaus. Not every company does – and it’s going to help you to have those timely payments appear on your business credit report.

#5: Pay Your Bills on Time

Perhaps the single most important thing you can do to build credit is to pay your bills on time. Timely payments account for 35% of your credit score. If you establish a history of paying on time, it will help your business credit score increase and prove your company is creditworthy.

One thing that can help is to create a bill payment schedule. Some of our business clients pay bills every week. They receive invoices and file them in the order they are due. Then, at the end of the week, they sit down and pay everything scheduled for the week.

You may decide to set up automatic electronic payments for some bills, just as you would with your personal expenses. Just make sure, if you choose this option, to account for electronic payments in your general ledger.

Building business credit will help your business qualify for necessary financing in the form of a loan or line of credit. The five steps we’ve outlined here will help you build your credit as quickly as possible.

To learn about Addition Financial’s business loans and lines of credit, please click here now.

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.