How to Build Business Credit
Building credit in your business can create amazing opportunities in your business for you to not only grow and expand your business but to become a success and savvy business owner with credit to leverage and use for different things such as inventory, equipment, property, vehicles, new locations and much more.
Many people don't really think of leveraging business credit because not many people are shown the opportunity to build and leverage business credit.
But I'm going to break down exactly HOW you can build and leverage business credit to become a successful business owner no matter how big or small your company is. Keep in mind, you should already have your LLC or Corporation established, meaning you already went through the process and have legally established your business.
STEP 1 - Do not fall into the Business Credit Card Trap
Many people don't know that building business credit has nothing to do with business credit cards. Yes, business credit cards may seem appealing and make you feel important to have your name on a piece of plastic, but that's really all it is.
Building business credit will not require you to use your Social Security Number, but rather, your EIN number, which leads me to STEP 2.
Keep in mind, that if you do apply for a “business credit card”, then it will show up on your personal credit rather than your business credit IF you applied using your social security number.
STEP 2- Apply for your EIN number.
Your EIN number can be obtained through the IRS.gov website. It literally takes 2 minutes to apply and receive your EIN number. Your EIN number is what is going to allow you to apply for a business bank account and open up trade lines.
Business credit is somewhat similar to personal credit with just a few differences. Your personal credit score is called a Credit Score, while your business credit score is called a Paydex score.
Your Paydex score will help lenders and vendors determine how trustworthy your business is with paying people back on time.
STEP 3- Make your Business Official
When building business credit, it’s important to make your mark in the world. People need to know your business actually exists. Therefore, it’s important to make sure you take the right steps to establish:
- Your business location
- Your business phone number
- Official email
If you’re an online business and don’t actually have a physical location, you can sign up for a digital address. Here are a few places below to go and get a virtual address:
You’ll also need an official business phone number. If you don’t want to get an entirely different phone, you can use companies like Godaddy.com, who offer split phone numbers so that you can keep your same phone and have 2 numbers.
Godaddy also offers official email accounts through Office365.
A great way to put your business on the map is to register your business in the Google directory so that accurate information can be obtained about your business.
STEP 4- Open a Business Bank Account
Establishing a business bank account is important so that you can keep your personal and business finances separate. You can also use the business bank account to make purchases with the trade line companies that you use.
For instance, if you decide to go with Uline as a trade line, then you’ll be able to use your business bank account to make purchases as you would with a credit card, but remember, you’ll be paying them back at least 5 days before the due date.
This will raise your Paydex score and show suppliers and vendors that you’re reliable and deserving of being lent to.
STEP 5 – Get a D-U-N-S Number
Dun and Bradstreet is a business credit database that shows you your Paydex score (Business Credit Score). In order to build business credit, you need to apply for your D-U-N-S #.
Dun & Bradstreet reports to the 3 major business credit bureaus which are:
Whenever you establish a Net-30 or Net-60 account with a vendor/supplier such as Uline or Quill, they would report these to one or all of the credit bureaus listed above.
STEP 6 – Open Trade lines to start establishing Business Credit
If you want to build business credit, you’ll need to establish Net-60 or Net-30 credit terms with these vendors. Net-30 simply means that the products purchased need to be paid for within 30 days. Net-60 means items need to be paid for within 60 days.
The ideal amount of vendors to establish credit with is around 3 to 5. There are tons of vendors out there. However, some of the top vendors and suppliers that report to the business credit agencies are:
- Crown Office Supplies
- Summa Office Supplies
- Creative Analytics
Step 7 – Pay each Trade line account at least 5 days before the due date each month
Establishing a trade line is similar but not the same as a credit card. The benefits of business credit far outweigh the benefits of building personal credit. With business credit, you can access much more financing to grow your business as opposed to building personal credit and trying to buy a home.
Banks and lenders favor giving capital to businesses over personal individuals, so keep that in mind. Paying early instead of on time, will make it look as though you don’t even need the money and you have somewhat of a good cash flow in place.
STEP 8 – Monitor your Business Credit
It’s important to continuously monitor your business credit to make sure vendors are reporting your Net-30 and Net-60 activities. It doesn’t take as long to build business credit as it does to build personal credit.
Your Paydex score is based primarily on if you pay your accounts with vendors on time, early or late. If you pay your accounts on time, you’ll get a Paydex score of 80 BUT if you pay early, your score could be boosted to 100 (a perfect Paydex score). THIS is what lenders want to see when you’re building your business credit.