How to Build Your Business Credit Score

A business credit score for companies is just as important as a personal credit score for consumers. It is the key metric of creditworthiness that defines the range of available lending options. Neither consumers nor businesses have any credit history before they start borrowing. Follow our tips to establish and improve your score. 

How This Works

The higher your position in the hierarchy — the more reliable you look in the eyes of financial institutions. New companies need to establish a positive score to obtain financing more easily. Sometimes, the assessment is flawed, and you can have it boosted on your behalf. You can go to this site to check the credit review. 

To unlock the best scores and avoid a credit repair scam, you need to understand the prerequisites. Whatever the legal structure, your company must be properly established, have a credit card, a bank account, and a vendor account. Even sole proprietors need to divide their business and personal finances. It is absolutely crucial to pay all bills on time — otherwise, you can neither build nor maintain a positive score. 

Key Indicator of Financial Health

The credit score of your company is an important tool for bargaining and negotiation. Not only does it make banks more willing to approve loans. It can also help you build relationships in the B2B segment. The absence of credit history makes borrowing complicated. 

Knowing how to build and interpret your score is crucial for the long-term success of your company. With a favorable rating, attracting vendors is easier, as they see proof of your creditworthiness. There are five key benefits:

1. Borrowing is more affordable.

2. Vendors may agree to provide services without prepayment.

3. You will get better conditions from suppliers and lenders.

4. You have a clear separation of personal and business finances.

5. Your business is financially stable.

Top Strategies 

Legal establishment is the first step towards a healthy credit score. At this stage, you need to file with different business bureaus. Positive financial habits will help you maintain a positive rating. Score monitoring is an ongoing process — check your status throughout the year to make sure it is an accurate reflection of your financial behavior.

Step 1. Establish and Register

Your company may be a corporation, partnership, LLC, or sole proprietorship. In any case, you need a legal name and a business phone number. You may also need to register with the secretary of state depending on the type of business. Then, start opening accounts with the vendors that share data with credit reporting agencies. This way, you will establish your business credit file, so the bureaus can rate you. 

Step 2. Get Your Employer Identification Number

EIN is the ID of your business and an essential piece of information for tax management. Once your company is registered, obtain the number. You must then use it to file taxes, request a business bank account, and obtain business licenses.

Step 3. Open a Business Bank Account

This is a crucial step in separating your personal and business budgets. With the account, you will also be able to qualify for a business credit card and start forging a connection with a bank. This may be useful in the future when you need a loan to expand your operations.

Step 4. Establish Cooperation with Vendors

Now, you are all set, and it is time to start building relationships with vendors (preferably, those that report to the bureaus), drafting supply contracts, and other documentation. To build credit, you must be extremely diligent with your payments. Make all of them on time, so the vendors will report only positive information to the bureaus. Note that different organizations may liaise with different reporting agencies. 

Step 5. Use Your Business Credit Card

Startups usually get credit cards with a lower limit, and it grows gradually as the entity builds its credit score. Do not just open a card — use it monthly. Depending on the bank and offer, you may get rewards for certain types of transactions. In any case, getting a card, using it, and paying off the balance is vital if you want to develop a credit file.

Step 6. Early and Frequent Payments

Late payments are extremely damaging to your personal and business score. Timely fulfillment of obligations is one of the most powerful factors for credit evaluation. This way, you demonstrate that you are able to make good on your debt. To accelerate file building, make more frequent payments.

Step 7. Focus on Utilization

To calculate a portion of your score, the bureaus also look at the proportion between the size of available credit and the amount you actually use. The lower the balance, the better it is for the score. Experts recommend sticking to the 15% or 30% threshold depending on who you ask. This works just like utilization on personal credit cards.

Stick to the recommended usage. If you have to use more funds, try to pay off the debt as soon as possible. In any case, you should always make at least the minimum payments. Another way to boost utilization is by getting a new credit line, as it will also be considered in the calculation. 

The Bottom Line

Business credit scores have many similarities with the FICO and VantageScore evaluations for individuals. They are based on the credit file of your organization, so the more favorable information it contains the better your status. Financial institutions and vendors are more likely to cooperate with companies whose status is positive. Establish your company in accordance with the law, open your first credit card and start making payments diligently to build the file.

Adam Hansen

Adam is a part time journalist, entrepreneur, investor and father.