How to Establish and Build Your Business Credit – 8 Easy Steps

Your startup and small business must have a good business credit score to build your company by securing financing at reasonable rates.

A strong business credit report is a valuable company asset you should proactively improve with these steps. Here’s how to establish business credit for the first time for startup companies and new firms.

Top Reasons Why It’s Important to Build Your Business Credit

A good business credit score will give your business the ability to:

1. Obtain financing and loans at lower interest rates because you demonstrate that you are less likely to default on the business loan.
2. Qualify for small business financing without having to sign a personal guarantee
3. Pay far less with lower interest rates which increase your profitability.

How to Build a Good Credit History for Your Startup – Part 1

Setup Your New Company for Business Credit Success

Take these eight steps to take to set up your business credit for your new company:

1. Decide on your business structure type of LLC, DBA or Corporation. 🙂 Save 10% with promo code BEST4B19 at Legalzoom.com
2. Set up your LLC, INC or DBA. LegalZoom – Over 1 million businesses have trusted us to help them get started. 
3. Get an EIN Employers Identification Number, also referred to as a federal tax ID number, for your business. LegalZoom, the easy way to get your Employer Identification Number.
4. Open a business banking account. Here’s how to open a business checking account
5. Register your business address and phone number and your primary by registering online, for free, on phone directories such as YP.com and map listings such as Google My Business, Apple maps plus review sites such as Yelp.
6. Apply at Dun & Bradstreet for your Duns number
7. Open trade credit accounts with your suppliers – do this by contacting your vendors billing departments and ask for and submit an application.  Inquire if they report payment history to credit agencies.
8. Start getting business credit cards and short-term loans. Because you are a new business and most likely not yet qualified for an SBA bank loan your best option for building your business credit is with credit cards, even secured ones,  that report to credit agencies, and short-term lines of credit such as at my recommendation Kabbage, read my review.

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Build on Your Credit Foundation and Improve Your Score – Part 2

Now that you have formed your LLC or Corporation, obtained an EIN and Duns number and registered your company at the various credit agencies you are ready for building your business credit to excellent scores.

1. Use your newly opened business account regularly to pay all your bills. Because credit agencies will review your banking transaction activity as a sign of your business creditworthiness.
2. Find out which of your suppliers and vendors report their payment of customer accounts to credit agencies. Make a point to use these vendors more often and be sure to pay on time, or even a little early, and regularly request increases in your credit limits. This would indicate to credit reporting agencies your ongoing good payment records and increasing creditworthiness which will dramatically, and quickly, improve your business credit score. By having at least three vendors that you utilize this strategy will dramatically and quickly build your business credit.
3. Expand your circle of suppliers to open more credit accounts that will report to credit agencies. Be sure to include large vendors that regularly report to business credit agencies such as OfficeMax, Home Depot, Staples Business, and Best Buy.  Other vendors with credit accounts that sell a wide range of products you could use in your business include Amsterdam Printing, Global Industrial, Granger, Loughlin Associates, Quill Office Supplies, and Uline.
4. Use your business credit card but not too much. You should regularly use your business credit card and pay it off in full every month, if possible, but not up to the top credit limit. Always maintain at least 30% of open credit limit at all times. Credit reporting agencies see this as a responsible use of your credit card and will award you points on your credit score.
5. Monitor your credit score and fix errors. Recent studies indicate that up to one in four small business owners credit reports have significant and damaging errors listed. So regularly get copies of your business credit report and review carefully for discrepancies. If you find errors or misrepresentations of late payments and other negative credit activity promptly file a dispute with the reporting agency to get this information expunged from your record. You can sign up for alerts with either Dun & Bradstreet or Experian which will email you when there is any activity on your credit profile. As your business credit grows, you can subscribe to programs such as Nav.com  which will give you your credit scores on the top three agencies including your FICA SPSS score.

Reader Question: Does Kabbage Require a Personal Guarantee?