#16: How Do I Build My Business’s Credit?

by | Apr 14, 2020

About This Episode

Every person has credit and a credit score, but how does that differ from a business’s credit and credit score? building credit takes time, but it’s never too late to start building your business’s credit and learning best practices.

Let’s build your business credit!

What we’re talking about

  • Personal Credit Card vs. Business Credit Card
  • How To Build Your Business Credit Line & Worthiness
  • How Business Credit Works
  • Business Credit Best Practices

organize business finances

Personal Credit vs. Business Credit

If you’re a sole proprietor and haven’t incorporated your business then your personal credit will be your business credit.

Best bookkeeping practices include using a separate credit card just for business purposes. If your business has been incorporated, then you can open a business credit card under your business’s name.

Unincorporated businesses (like a sole proprietorship) will have credit based on you and your personal credit and cannot build separate business credit.

How To Build Your Business Credit Line & Worthiness

If you really want your business to have its own credit score than you’ll need to incorporate your business.

Next, you’ll need to get a DUNS (Data Universal Numbering System) number used by DUNS and Bradstreet (D&B). D&B is the most well-known business credit agency and only deals with businesses. It’s not a must-have, but getting a DUNS number helps you build your credit because suppliers and vendors use it to determine your creditworthiness.

Then you should open tradelines, which is just a fancy way of saying opening a line of credit with your vendors and suppliers. Aim for 3-5 lines of credit and always pay your trade lines on time (or even early) and in full.

Next, open a business credit card in your business’s name and select one or two recurring business expenses to put on the card. Be sure to use your card responsibly!

Lastly, request a business credit report annually to ensure there aren’t any errors and dispute errors in a timely manner.

How Business Credit Works

While personal credit scores range from 300-850, business credit scores range from 1-100.

Also, your business credit is in perpetual existence. If you sell your business, the business’s credit goes with the business.

If your business is new and without a credit history, then you might be required to sign a personal guarantee in which case your personal credit will help you build your business credit. But you’ll also be personally responsible for paying back the money your business borrows.

Business Credit Best Practices

Best practices for your business credit are similar to best practices for your personal credit.

  • Make payments on time or early. Habitual late payments will show up on your credit report.
  • Pay off your credit lines in full each month. If you can’t pay in full, then ensure you are utilizing less than 10% of your total available credit, which gives you a low debt to credit ratio. The higher your debt to credit ratio is, the lower your credit score will be.
  • Don’t open a bunch of credit cards or loans at once. When you apply for a credit card or loan, each lender performs a hard inquiry on your credit. Hard inquiries reduce your credit score, which isn’t a big deal if it’s just one. But, if you have multiple hard inquiries in a short amount of time, then your credit score will drop and it will take you longer to increase it.

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