How to Establish and Maintain Business Credit

small business owner using business credit card to purchase studio supplies

When you set out on your entrepreneurial journey to grow your small business, building business credit is an important aspect to consider from the beginning.

There may come a time when you need access to additional financing and taking a proactive approach to build up your credit portfolio will put you in a better position to receive more favorable lending options. Without making an effort to build your company’s credit score, your business may not have a way to prove financial responsibility.

By establishing a business credit score, you’re setting your organization up for growth and success. We’ve put together this comprehensive guide for entrepreneurs on business credit: what it is, why it’s important, and how to establish and maintain your business credit score.

What is business credit, and why is it important?

“Think of your business credit report as a gauge for the financial reputation of your business.”1 It’s a strong indicator of how financially reliable your company is. Depending on the nature of your organization, you might need to use business credit to help finance the purchase of new equipment or machinery, buy inventory, or expand your footprint. Sometimes there can be unexpected expenses and you need additional money to cover payroll or bridge cash flow gaps. According to the National Small Business Association (NSBA), 27% of small businesses are not able to receive the funding they need, and 20% of business loans are denied due to business credit.2

To calculate your business’ credit score, agencies will use payment history, credit utilization ratios, and company information such as when your company started its operations, industry, and financial performance. Without business credit, your organization will struggle to find lending options when you need cash.

There are three major business credit reporting bureaus: Dun & Bradstreet (D&B), Experian, and Equifax. Dun & Bradstreet and Experian scale business credit scores from 0 to 100, while the Equifax Credit Risk range is from 101 to 992.

How do I establish business credit?

Establishing business credit is not as daunting as it may seem; it just takes patience, discipline, and organization. Here are a few steps to help you build a solid business credit foundation.

Register your business

When you’re first starting your operation, there are certain foundational steps to take to set your business up for success. After registering, you can apply for an Employee Identification Number (EIN). An EIN is your federal tax identification number and is the business equivalent to a social security number.

Open a business bank account

Opening a business bank account makes it easier to keep your business and personal finances separate, in addition to helping your organization appear more legitimate to both clients and lenders. When you choose an institution to do your business banking with, you have an opportunity to start building a relationship with experts that can help you navigate the financial side of your entrepreneurial journey. This can be beneficial if further down the road you need to leverage industry expertise or advice of the bankers. Opening a business bank account can also help you get a business credit card.

Establish accounts with vendors that report to business credit agencies

As you begin to build your business, you will have to research and select vendors you want to purchase materials, supplies, and inventory from. When considering vendors, find out if they report to credit agencies. Not all do, but you build credit when you pay your invoices early or on time with vendors who report to agencies.

Open and use a business credit card

Opening a business credit card is a win-win for you because you get to reap the perks and rewards of the credit card while also building credit for your company. If you’re just starting up, some banks will allow you to use your personal income information as opposed to your business’. Do some research to determine which credit card makes the most sense for your organization; some cards offer cash back, rewards points, low interest rates, and even non-profit credit. Keep in mind that in order to build credit, you must use the card and pay back the balance in a timely manner.

When you first open the card, your credit limit may be lower than ideal. It’s important to remember credit utilization can also affect your credit score. While using your card, try to limit your spending to less than 30 percent of your credit limit. As you prove financially responsibility to the lender, your limit will likely increase over time.

Pay your debts on time

Payment history is one of the most important factors in building and maintaining your business credit score. By paying your bills in full and on time, you’re proving to lenders you can properly manage various debt obligations in your name.

How can I check my business credit score?

The process for checking your business credit score will depend on the bureau you go through. Unlike personal credit reports, business credit reporting is not free. However, there are several options and you don’t need to check with every agency.
  • Dun & Bradstreet – To check your credit score with Dun & Bradstreet, you’ll have to manually set up a business credit profile and apply for a free D-U-N-S number (a business identification number). After you receive your D-U-N-S number, you can check your score whenever you want.
  • Equifax – Equifax automatically generates a credit profile for your business. They make it easy to visit their website and request a copy of your business credit report. Like other credit agencies, they offer different reporting and subscription options.
  • Experian – Experian also automatically generates a credit profile for your business. You can check their website to see if there is a profile for your business. If you cannot find a credit profile for your business on their website, you can contact Experian to request a file be created. If a file does come up, there are a few different reporting options available for you to choose from.

Tips for Maintaining Your Business Credit Score

Once you’ve built up your credit score, it’s important you take steps to maintain it. Here are some practical tips for maintaining your business credit score.

Continue to pay all your dues on time

As mentioned previously, payment history is a major factor in determining your credit score. Always pay your debt obligations on time and in full. When you miss or make a late payment, your credit score may be negatively impacted.

Be responsible with your credit utilization

Credit utilization is another data point creditors look at when calculating your credit score. When you use 30 percent or less of your limit, your showing financial responsibility to lenders. Strive to use less than 30 percent with all of your credit sources; this can make you seem financially responsible to lenders. When you accrue a lot of money on credit cards or lines of credit and only make the minimum payment, you become a risk for lenders.

Don’t close old credit cards

Closing old credit accounts and cards can hurt your credit score. When you close an old credit card, you are ridding the history of that account from your credit report. Since payment history and length of time are factors in your credit score, your old credit cards may help to maintain a higher score.

Regularly monitor your credit score

As a business owner, you should monitor your credit score on a regular basis. Developing this practice will always keep you informed on where you stand credit-wise, but also helps you catch errors or mistakes sooner.

Having a business credit score is vital to running a healthy, financially stable business. Your credit score is one of the elements lenders examine to determine whether or not your business is financially reliable and capable of making important payments. A good credit score can help your business get the financing you need with more favorable terms and intertest rates. Working with a SouthState small business banker will help put you on the path to success. Contact a banker today.

About the Author

About Jordan Hallam: Jordan is the Director of Government Lending at SouthState Bank. He has 15 years of commercial lending experience specializing in SBA lending, business banking, and investment real estate. Jordan is a graduate from the University of Florida and the Florida School of Banking.
Jordan Hallam Senior Vice President and Sales Manager for SouthState’s Small Business Administration team

  • This content is general in nature and provided for informational use only. Content may be used in connection with the advertising and marketing of products and services offered by SouthState Bank, N.A. and its subsidiaries and affiliates. This is not to be considered legal, tax, accounting, financial or investment advice. You should seek individualized advice from personal financial, legal, tax and/or other professionals, as appropriate depending on the specific facts of your situation. We do not make any warranties as to the completeness or accuracy of this information and have no liability for your use of this information.

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