How to Establish Business Credit

If you want to supercharge your business, you need to establish business credit. Having good business credit opens up doors, makes it easier to access special financing, negotiate favorable terms with lenders and suppliers, and even pay lower insurance premiums. It takes time to establish business credit, but if you start your efforts at the beginning, then focus on credit building basics, like paying your bills on time, reducing debts, and regularly monitoring your credit score, you can do it.

1. Set up Your Business and Establish a Credit Profile

Dun & Bradstreet, Experian Business, and Equifax are the three main business credit bureaus. To establish business credit, you’ll need to request a DUNS number through Dun & Bradstreet, then register your business with Experian and Equifax. To register you need:

  • A registered legal business entity (like a corporation or LLC)
  • You can register your LLC for $0 (except state fees, which vary) with IncFile
  • Employer Identification Number (EIN) from the IRS
  • Some services charge for this, but you can get it  free from the IRS
  • Business bank account, business phone number or email address

2. Apply for Business Credit in Your Company’s Name

You apply for business credit just like personal credit. Once you’ve established your business, secured your EIN, and created your credit profiles, it’s easy to establish new credit accounts with suppliers and vendors. A net-30 account is a vendor credit account that allows you to buy now and pay 30 days later. Two great companies that offer net-30 credit terms and are easy to get approved for include:

  1. Uline has a massive product catalog that includes everything from boxes and shipping supplies to warehouse equipment, office furniture, packaging and more. Uline reports to Experian Business and D&B, offers net-30 terms, and doesn’t check personal credit.
  2. Quill, like Uline, has a massive catalog that’s more office-supply focused, with everyone from printers, ink and paper to self-stick notes, coffee, and clear-view binders. Getting credit with Quill is easy. Just set up your account, complete your profile, including your business start year and industry, and that’s it. Approval takes just a few hours.

3. Get Your Business Finances Organized

To establish and use business credit in your business, you’ll need to separate your business and personal expenses. Aside from keeping you organized, this will save you a mountain of paperwork come tax time. We recommend Bench, America’s largest professional bookkeeping service for small businesses, to take this work off your plate. Having organized books, or accurate records of your business’s finances, will ensure smoother, faster financing approvals. 

Other benefits of using a professional bookkeeper include:

  • Save money by having a better record of tax deductions.
  • Get more clarity on your business’s financial health and where your money is going.
  • Spot problem areas ahead of tax time and prevent costly fees.

Pricing with Bench “done-for-you bookkeeping” starts at $139 a month (if billed annually), or $159 monthly, for business with expenses not exceeding $1,000 a month.

4. Monitor Your Business Credit Utilization

Lenders view high credit utilization as risky. Your credit utilization rate is the total of your credit balances divided by your total available credit. Here’s an easy example:

  • If you have a $5,000 credit limit and a $0 balance, your utilization rate is 0%
  • But, if you had a $2,500 balance on that same card, it would be a 50% utilization rate
  • This is because 50% of $5,000 is $2,500, the amount equal to your balance

A credit utilization rate higher than 30% is seen as a red flag. It decreases your business credit score and is perceived as an overextension of credit, because lenders think you might have difficulty repaying the debt. So, it’s best to keep your total utilization at 30% or less to make approvals for additional financing or loans a breeze. 

5. Always Pay Your Bills On Time

Remember those fundamentals I mentioned in the introduction? This is the key one. Why? Because payment history is the most important credit scoring factor, and is responsible for 35% of your score. The negative impact of paying late increases in proportion to the lateness of your payments (i.e., 30, 60, 90 or 120 days past due). Other factors to consider: 

  • Pay down debt. This is how you lower your credit utilization ratio, which also has a large impact on how your business credit score is calculated.
  • Regularly review your business credit report. Mistakes happen and your scores could suffer for it. So monitor and dispute any inaccurate information appearing in your report. The sooner you address it, the better.
  • Limit new credit accounts. You may be excited and want to open 100 new accounts now that your business is up and running. But temper your enthusiasm, because hard inquiries on your credit file have a negative impact too.

Our Two Cents

This quickest way to establish business credit is to create profiles on Dun & Bradstreet, Experian Business, and Equifax. To request a DUNS number through Dun & Bradstreet and register with Experian and Equifax, you’ll need a legal business entity (which you can get for free, paying only state fees with IncFile), an EIN from the IRS and a business bank account. 

From there it’s a matter of opening a few vendor accounts that report to the three bureaus, paying your bills on time and adhering to good credit principles (like reducing debt, etc.). Stay on that path, and you’ll be able to access special financing, negotiate favorable terms with lenders and suppliers, and even pay lower insurance premiums in no time.

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