How to Build Business Credit: 6-Step Guide (2024) - UpFlip (2024)

A recent UpFlip original survey found that for 51% of business owners, finances are the biggest challenge to growing or starting a business. So, we’ve gathered some information to help business owners get funding faster by building business credit.

Why are the majority of entrepreneurs so challenged by finances? Well, most business owners are self-funded and don’t start building business credit until they really need it. That’s the wrong time to start. You should establish business credit as soon as you have a business license.

We talked to Christopher Mondragon about establishing business credit, and he shared the process he used while building Queen Bee Cleaning Services into a $1.5 million business.

Get ready to learn how to build business credit in six easy steps.

How Does Business Credit Work?

Business credit bureaus look at factors similar to those reviewed by personal credit agencies, but their inquiries are a lot more detailed than those that evaluate personal credit. Business credit bureaus use a ton of data analysis to establish business credit scores.

You’ll want to play their game to get a good business credit score. We’ll discuss the points they look at and how to gamify their systems. Some of the data they share in business credit reports includes:

• Executive description
• Principals (business owners)
• Industry
• Risk ranking compared to industry average
• Financial data
• Similar companies
• User testimonials
• Web presence
• Court filings
• Number of trade lines and volume

Executive Description

An executive description lets people know what the company is about. It will include:

1. Company name
2. DUNS number (more on this below)
3. Company address
4. Company phone number
5. Year started
6. Key employees
7. Sales
8. Working capital
9. Net worth

Basically, it is a brief company description.

Principals (Business Owners)

These are the people who have substantial ownership in the company or manage it. The number of people and their reputations impact business credit because agencies can collect data on them and use it to model the company’s likelihood of success based on publicly available data and other available information.

Industry

Different industries have higher or lower risk factors, which affect how they are classified. Find industries that are scrutinized more. A great way to tell whether an industry is growing or shrinking is to check the Bureau of Labor Statistics. They show the projections through 2026 here.

If you’re going into healthcare or information systems, you have the best industry growth expectations. If you’re exceeding it, you are more likely to get lending.

Risk Ranking Compared to Industry Average

Credit agencies have a variety of ways they measure business creditworthiness, but all of them are based on the risk of default. That means you need to do everything you can to make it obvious that you are trustworthy.

Part of the reason business credit is highest for corporations is that corporations have to file:

A Prospectus (Form S-1): Corporations have to file an S-1 before they sell stock. View the SEC template.

Annual Reports (Form 10-K): Annual financial statements and summaries of what the business has done and will do in the next year. You can download and review the SEC 10-K form. These must use audited financial statements.

Quarterly Reports (Form 10-Q): A Form 10-Q is similar to annual reports but is for a three-month period.

Current Reports (Form 8-K): The 8-K is often referred to as a report on material changes. If a major event happens that would impact shareholder value, corporations have to file these. The SEC has a full list of 8-K events.

Annual Report of Employee Stock Purchase, Savings, and Similar Plans (11-K): An audited documentation of executives in the company buying and selling shares. View the Form 11-K instructions.

These reports help business credit agencies review a business’s financial health and compare it to other small business credit applicants. Without them, the credit bureaus are using a predictive model that may severely underestimate your annual income and make it harder to establish credit for your business.

Financial Data

Credit bureaus have access to the financial data for over 6,000 corporations based on the 10-K filings in 2022.

Similar Companies

This part of the evaluation shows competitors and how they’re performing compared to your business to show whether you are a leader or laggard in your industry.

User Testimonials

Credit bureaus will check your user testimonials to see whether you have good ratings, so the more good reviews you have, the better. You can also submit written letters of recommendation.

Web Presence

Business credit reporting agencies look at your overall web profile to establish business credit scores. The more consistent and professional your business appears online, the better your credit will likely be. Make sure to be consistent with:

• Name
• Address
• Phone number
• Email
• Pricing

Variations can hurt your business credit score.

Court Filings

If you have been involved in a lot of lawsuits, it will harm you as you build business credit. Nobody likes a lawsuit, and corporations often use bankruptcy to evade lawsuit payments. If you do that, vendors are likely to lose their money, too.

Whatever your business type, these scenarios can bring down your business credit score.

Trade Account Volume

Trade accounts are any revolving line of credit. Business credit bureaus will include the following information in your credit report:

• Number of trade lines: You’ll want to establish trade lines (formal credit relationships your business has with suppliers, vendors, and creditors) to help build your business credit. Dun & Bradstreet (D&B) uses three as the minimum, and it’s considered a good level of diversity.
• Type of trade account: Examples include business loans, Net-30, credit cards, SBA loans, and equipment loans.
• Credit limit: What is your maximum available to borrow?
• Credit history: How well have you paid in the last year?
• Current outstanding: How much do you currently owe?
• Currently delinquent: How far are you currently behind in business tradelines?
• Max delinquent: What is the maximum your small business has been behind in the last 30 days, 90 days, or a year?

How to Build Business Credit (Even With Bad Personal Credit)

Entrepreneurs with poor personal credit probably aren’t going to get around that quickly. Until you score 80 from Dun & Bradstreet, companies will pull your personal credit reports because they’ll want you to provide a personal guarantee.

Check your personal credit to ensure it is above 600 to have the best odds of getting approved for business credit cards and other trade lines. If you don’t already have Credit Karma, sign up for it to view your personal credit history and find ways to repair it.

Pro Tip: You can try an option like Self Credit Builder to offer yourself a secured loan and pay it back. Check out the Self website or contact the Self credit builder phone number: (877) 883-0999.

Even if you have decent personal credit, Chris shared that it normally takes a year or more for a small business to develop a credit history. Regardless of your credit score or where you are in the process of improving your personal credit, here are the steps you’ll need to take to build business credit…

#1. Register Your Business

Before you can build a business credit score, you’ll have to open a business, if you haven’t already. That means you’ll need to register your business with your state’s Secretary of State and get an Employer Identification Number from the Internal Revenue Service.

How will taking these steps impact building business credit?

Registration and Business Credit

Two aspects of registering a business will impact getting business credit. You’ll have more funding options if you:

1. Register as a corporation or LLC
2. Have an Employer Identification Number (EIN)

Let’s look at how each of these impacts building business credit.

Business Formation Type

Companies fall into three categories:

1. Personal income with no personal liability protection (sole proprietor and partnership)
2. Personal income with personal liability protection (LLC and S-Corp)
3. Corporate income that pays employees wages and shareholders dividends (C-Corp S-Corp)

Read our blog to learn more about each type of business structure.

Experian explains sole proprietors’ impact on business credit:

Sole proprietorship and partnership owners will have their personal credit history checked, while an LLC, S-Corp, or C-Corp might need their business credit to be personally guaranteed.

C-Corporations and S-Corps can stock, while C-Corps can also get venture capitalist funding. This opens up options for funding—but at a higher cost.

Bottom line: You might want to consider filing as a corporation if you want to build business credit with the most separation from your personal credit score.

Learn more about registering your business.

Building Business Credit With EIN

You need an EIN to do most of the steps in this business credit-building process. If you haven’t already, get an EIN from the IRS. You’ll need it for the DUNS number and other parts of the process.

After these two items are marked off your checklist, you’ll want a business bank account.

#2. Get a Business Bank Account

Almost every bank and credit union offers business bank accounts. While you might be tempted to use an online bank, they are less likely to benefit you while building business credit. Small banks and equipment lenders have the highest approval rates.

Find a local bank or credit union near your home or business, then go there regularly. Small banks get most of their business from the local county and often base their decisions on relationships.

If you go with an online vendor bank, I recommend considering Bluevine’s free account options.

Learn more about choosing a business bank account if you haven’t already. Once you have a business bank account, it’s time to get set up with the business credit bureaus.

#3. Get a Business Credit Score

There are three major business credit reporting agencies in the United States:

• Dun & Bradstreet (D&B): One of the oldest business credit bureaus in the world at over 200 years old. They also offer marketing, compliance, and supply chain management software.
• Experian Business: Use Experian to view your business credit report, check customer credit, find leads, and collect debts.
• Equifax Small Business: Check your business credit report, check credit reports for employees and customers, reduce fraud, and increase conversions with Equifax tools.

First, you’ll want to build a business credit profile with Dun and Bradstreet. This requires getting a DUNS number.

Get a DUNS Number

Chris told us:

Check out our interview with him below:

Dun & Bradstreet sometimes assigns a DUNS (Data Universal Numbering System) number, but not always. First, you’ll check to see if they already created a DUNS for your business. If they did, you should prove your ownership by answering a few questions and connecting the appropriate business bank account.

If D&B hasn’t already created a free DUNS number, you’ll want to provide them with the information necessary to initiate the process. It will take up to 30 days after you submit your documents for a DUNS number to be assigned.

Dun & Bradstreet will require two of the following documents to get things going:

• Articles of Incorporation from the Secretary of State
• Receipt of filing from the Secretary of State
• Taxpayer identification number (TIN) confirmation letter
• DBA (doing business as/assumed name) certificate filing
• Mortgage
• Lease agreement
• Employer identification number (EIN) confirmation letter
• Phone or internet bill
• Proof of insurance
• Utility bill
• State or city tax permit
• Homeowner’s or renter’s insurance
• Invoice from a third party

Your legal business name and current physical address need to be on each document. The documentation must contain your current physical address and full legal name for sole proprietorships. Note that documents like Social Security numbers, passports, driver’s licenses, and personal banking statements are not acceptable proof.

Dun & Bradstreet Credit Scores

D&B sells eight different credit scores, all of which have different purposes. Their offerings include:

1. Paydex: This is the most well-known D&B credit ranking of 0 to 100 (with 100 representing the lowest risk).
2. D&B Score: This credit score takes all the factors D&B assesses into consideration.
3. Delinquency Predictor Score: D&B calculates the risk of business failure using various data, then rates a business based on a score, percentage, and class. The scores rate the risk of bankruptcy from 101 (worst) to 670, while class 1 is the best and class 5 is the worst.
4. Failure Score: This is another way of measuring a business’s likelihood of failure, but the scores go from 1001 to 1875 and include company type, age of business, net worth, and other data. It is more limited than the delinquency score.
5. Supplier Evaluation Risk Rating: This credit score solely focuses on informing businesses if a supplier will be able to meet their responsibilities for the next 12 months.
6. Viability Rating: This credit score makes it easier to compare new companies by considering success in the field compared to other fields. Complying with the corporation filing requirements should help improve this rating based on the weighting factors.
7. Maximum Credit Recommendation: This score shows the maximum D&B suggested borrowing. Financial companies might use this credit score as your credit limit.
8. Overall Business Risk: This credit score combines all the scores into a single report with explanations of risks. This is helpful because it can show you areas where you need to improve. Learn more.

Chris told us that most creditors rely on the Paydex Score. He went on to explain what financial institutions and business vendors consider a good business credit score:

Pro Tips: Check out this D&B presentation to understand how all the credit scores work together to give D&B an accurate business credit file. If you are applying for business credit, ask which reports the lender uses to help predict your likelihood of getting business credit.

Equifax Business Credit Scores

Equifax assigns business credit scores with different score ranges, including:

• Equifax Business Credit Risk Score™
• Equifax Business Failure Score™
• Payment Index
• Payment Trend
• Equifax Delinquency Score for Other
• Small Business Financial Risk Score for Financial Services
• Small Business Financial Risk Score for Suppliers

We’ll look at the two main ones next.

Equifax Business Credit Risk Score™

This business credit score rates risk using a range of 101 to 992. You want as low a score as possible because the score ranks the risk of 90-day delinquency in the next year. Learn more.

Equifax Business Failure Score™

This business credit score ranks the probability of bankruptcy in the next year. It uses a range from 1000 to 1610, with a high score meaning a higher chance of bankruptcy.

Experian Business Credit Scores

Experian Intelliscore PlusSM is similar to The Equifax Business Credit Risk Score™, but it uses a range of 0 to 100, with 100 as the best credit score.

Experian Intelliscore Plus V3 changed to using a business credit score more in line with personal credit scores. It uses a range of 300 to 850 to rank business credit scores now.

Experian has made personal credit scores more important in its blended reports, which combine the business credit score and personal credit score.

They also sell other types of credit reports, which small business owners can learn about here.

Getting Business Credit Reports

Anyone can purchase a business credit report from the business credit bureaus. Make sure you know what’s on them, so you don’t destroy your credit score applying for business credit you won’t qualify to receive.

You don’t get a free copy annually as with personal credit. That said, you can get a free copy from the credit reporting agencies if you receive a denial letter.

Now that you’re familiar with the credit score reporting agencies and how to get your DUNS number, it’s time to sign up with NAV.

#4. Use Nav Business Credit Builder

Another great tip for how to build business credit is to sign up for Nav. Chris told us:

You’ll want to sign up with Nav if building business credit fast is your goal. Nav credit suggestions show business credit cards, business loans, and business vendors that are likely to approve you based on your personal and business finances.

Nav is free to join, but if you upgrade to the Business Boost or Business Loan Builder, they’ll report your monthly payments to the credit reporting agencies to help you build credit lines. Chris recommends it. He told us:

Nav also has recommendations for software to help your business entity manage business expenses.

Next, let’s look at how to build business credit for a small business.

#5. Establish Business Credit

Building business credit doesn’t have to be hard. Chris was kind enough to share some business credit-building companies he used on his way to making over $1 million annually.

He went on to some of the best sites you can use for building small business credit. He specifically mentioned:

1. Quill
2. Arco
3. Divvy

We’ll look at each of these business credit building services so you know what to expect.

How to Build Business Credit with Quill

Quill is one of the companies Chris recommends for building vendor credit. Vendors sell supplies and equipment that you’ll need to run your business. Chris told us:

Quill allows many businesses to get Net-30 invoicing (meaning you could get 30 days from the date of your invoice to pay your total amount due) and reports to Dun & Bradstreet.

For those who do not qualify, Quill will explain what you can do to build your business credit and be more likely to qualify if you apply again after 90 days. Learn more about Quill Net-30 financing.

Quill reports business credit to Dun & Bradstreet when you make or miss payments. You’ll want to pay these as early as possible because vendors report business credit, the due date, and the date paid. Early payments look good.

Note that building credit for a business might be costly this way. Some products are overpriced, but many are comparably priced to Walmart or Amazon.

Next, let’s look at Arco.

Get an Arco Business Credit Card

Arco is a gas station that offers fleet cards and a Mastercard option:

1. Fleet Card: Use it at Arco stores to get gas.
2. Mastercard: Use at any fuel station or maintenance shop that accepts Mastercard.

Chris told us:

If you use your personal vehicle for work, you’ll want to be careful doing this because you’ll have to separate your personal and business mileage. That said, it’s a great start for building business credit without personal credit.

Next, we’ll discuss why Chris suggests using Divvy.

How to Start Building Business Credit With BILL

BILL (formerly Divvy) is recognized as the preferred expense management software by CPA.com, a subsidiary of the American Institute of Certified Public Accountants (AICPA). They are one of six companies recommended for Client Advisory Services. Even better, it’s free to use.

BILL offers services for business credit lines of up to $15 million and also has options that allow you to build business credit quickly using its secured business credit card. The expense management features will also help you build a good business credit score by making it easier to track expenses.

Chris told us:

That makes it easier because you are approved based on your service costs. You’ll build your business credit much faster because gross income tends to be nearly four times higher than net income.

#6. Build Good Business Credit

A good business credit score isn’t going to be built overnight. Your business entity will need to spend money using your business credit cards and other trade lines. You can expect business credit reporting agencies to show improvements three to six months after your first payments.

We’ve covered the most important aspects of how to get business credit. Hopefully, this helps you establish business credit and build better small business finances.

What are some of the challenges you have overcome while trying to get small business loans? And how did you overcome them?