Building Business Credit
During our nearly 30 years in the business credit industry, we have been asked countless times: how can small businesses build their business credit?
While there is no shortage of resources on the subject available to business owners, we would be remiss if we didn't share our thoughts on how to establish and build business credit.
Establishing A Business Identity
Before we discuss a business credit report, let's touch on some basics for establishing your business' identity:
- It's recommended to form an LLC or corporation and establish an Employer Identification Number with the IRS.
- Open a business bank account and establish a business phone line using the business name and address.
- Having an identity separate from that of the business owner not only protects the business owner from liability, it shows the world that the business is legitimate.
Business Credit Bureaus
Just as there are credit bureaus that gather information on nearly every consumer in the United States, there are credit bureaus that collect and provide information on businesses. The three largest are: Experian, Dun & Bradstreet and Equifax. There are also smaller, industry specific, or regional credit repositories.
These credit bureaus build credit profiles on businesses when lenders and other credit issuers report the accounts receivables data of their credit customers. When companies pay their bills on time, this timely payment activity is reported to the credit bureaus. Likewise, when a company is late on its bills, that poor payment behavior is also reflected on the company's credit record. Since it is not required to report to the bureaus, each credit bureau has their own credit scores and profiles for each business.
Lenders, supplier, and sometimes even customers use the company's credit profile and scores to make credit decisions on the company. Companies with good credit receive lower interest rates, higher credit limits, and better terms from suppliers and lenders than companies with poor credit.
How to Build Business Credit
So, how do companies build strong credit profiles that suppliers, lenders, utilities, and insurance companies will view favorably?
One easy way to start is to open a couple of business credit card accounts. Accounts for commercial gas cards, charge card accounts from big-box retailers and regular business credit cards are usually reported to the business credit bureaus and are a great way to start building credit.
Establish a credit line with suppliers and ask if they report their trade data to the credit bureaus. If they don't, have them visit us at businesscreditreports.com. We can help them report your trade data to all three big credit bureaus for free.
In order to obtain credit lines with most companies, you will need to have credit history of some sort. There are a couple of additional resources that help small businesses establish their credit.
Nav.com helps business owners monitor and build their business credit. We recommend Nav.com for business owners, as they can offer you:
- Full business credit reports & scores from D&B, Experian and Equifax
- Full personal credit reports & scores from Experian and TransUnion
- 14/7 business & personal credit alerts
- Assistance disputing errors on your business credit reports
- $1M Identity Theft Protect & Full-service Identity Restoration
- Lost Wallet Replacement
- Assistance building business credit by reporting your payment as an active tradeline to all 3 of the business credit bureaus
- FICO SBSS score - used by the SBA!
eCredable helps budding businesses establish credit by pulling in 24 months of credit history from telecom, internet and utility providers. They then report that payment history to the credit bureaus so it will appear on your business credit report.
Dun & Bradstreet offers the creation of a DUNS Number for free to new businesses looking to establish credit. The DUNS Number has previously been required for federal contracts and grants used, but is still commonly used for reviewing your business credit.
Experian SmartBusinessReports provides access to business reports from Experian, including your own. They also offer tips and tools to help boost your Experian Intelliscore score!
Finally, and most importantly: pay all your credit related bills within terms. It's great to have a credit report in place, but if that credit report shows unreliable payment behavior, it won't help your business any. Suppliers and lenders will require strict terms or may not want to issue a credit line at all.
Following all of the suggestions listed above will quickly build a strong credit profile for your company.