Top strategies for building and maintaining strong business credit

In this Article:

• What is business credit?
• How business credit scores are calculated
• Understanding business credit bureaus
• Strategies for building business credit
• Common mistakes to avoid
• How good credit can improve your funding options
• Maintaining strong business credit
• Frequently asked questions

Building and maintaining strong business credit is crucial for the long-term success of any enterprise. Business credit influences everything from loan approvals to commercial leases, making it an essential factor in managing business operations.

Business credit allows companies to borrow money or procure goods and services on credit, independent of the owner's personal finances. Having solid business credit helps businesses secure favorable loan terms, lower interest rates, and higher credit limits, and can make or break business expansion plans.

What is business credit?

Business credit refers to a company's ability to borrow and repay debts. This is like personal credit but instead tied to a business entity itself.

Personal credit is linked to an individual's financial history, while business credit is tied to the company's financial activities. Separating the two helps maintain personal financial health and enhances the company's ability to grow.

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How business credit scores are calculated

• Payment history: Timely payments reflect positively on your credit score. Late or missed payments can severely damage it.
• Credit utilization: This is how much of your available credit you are using – in other words, your outstanding credit balance. A lower percentage of credit utilization demonstrates responsible borrowing and helps improve scores.
• Length of credit history: The longer the history of responsible credit use, the better the score.
• Types of credit used: A mix of credit types (loans, lines of credit, credit cards) improves scores.
• Public records: Bankruptcies, liens, and other negative public records can drastically reduce credit scores.

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Understanding business credit bureaus

Business credit bureaus like Dun & Bradstreet, Experian, and Equifax are the primary organizations that collect and report credit information for businesses. These bureaus gather data from vendors, lenders, and public records to evaluate your business creditworthiness. Regularly monitoring the information they report ensures the accuracy of your business credit profile.

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Strategies for building business credit

1. Establishing a business entity

The first step in building business credit is to establish a legal business structure such as an LLC or corporation, which separates your business from your personal finances.

2. Obtaining an Employer Identification Number (EIN)

An EIN is required for tax purposes and is a crucial identifier when applying for credit in your business’s name.

3. Opening a business bank account

A dedicated business bank account allows you to separate business transactions from personal ones and helps establish credibility with lenders.

4. Using business credit cards wisely

Start using business credit cards for everyday expenses but be sure to pay them off in full each month. This helps build your payment history and keeps your credit utilization low.

5. Applying for a business line of credit

A business line of credit provides access to funds that you can draw from as needed. It also demonstrates that your business can handle revolving credit.

6. Ensuring timely payments

One of the most important ways to build and maintain strong credit is to make all payments on time. Even one late payment can have a lasting negative impact.

7. Diversifying credit sources

Having a variety of credit types—like loans, lines of credit, and trade credit—shows responsible credit management and improves your score.

8. Monitoring credit reports regularly

Regularly reviewing your business credit reports ensures that there are no inaccuracies that could hurt your score. For more guidance, explore resources like the SBA’s guide on business credit.

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Common mistakes to avoid

1. Late payments

Late or missed payments can cause significant damage to your credit score. Set reminders or automate payments to avoid this common mistake.

2. High credit utilization

Avoid using more than 30% of your available credit at any time. High credit utilization can lower your credit score and signal financial instability.

3. Neglecting to monitor credit reports

Failing to check your credit reports regularly can leave you unaware of errors or potential fraud.

4. Overextending credit

Taking on too much credit can lead to financial strain and a negative impact on your credit score.

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How good credit can improve your funding options

A strong credit profile opens up numerous financing opportunities for your business.

• Easier approval for loans
• Lower interest rates
• Higher credit limits
• Access to better business credit cards
• More favorable terms for a business line of credit

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Maintaining strong business credit

Once you’ve built solid business credit, it’s important to maintain it.

1. Consistent monitoring of credit reports

Regularly check your credit reports for accuracy, ensuring that there are no discrepancies.  

2. Timely dispute of errors

If you find inaccuracies in your credit report, dispute them immediately with the relevant credit bureau. Learn how to manage errors effectively with tools like MyCreditUnion.gov’s credit report resources.

3. Continual usage and management of credit

Continue to use credit responsibly, making sure to make payments on time and pay off balances as soon as possible.

4. Regular communication with creditors

Maintaining open communication with creditors helps resolve potential issues before they impact your credit.

5. Tools and resources for managing business credit

There are many online platforms and services that can assist with business credit management.

• Credit monitoring services
• Business credit report services from bureaus like Dun & Bradstreet
• Industry-specific tools tailored to your business needs

Explore additional resources from the SBA blog on building business credit.

Building and maintaining strong business credit is essential for any business aiming for sustainable growth. From establishing your business entity to monitoring credit reports and managing payments, proactive management can unlock new funding opportunities and better financial terms. Use available tools and resources to strengthen your business credit profile and ensure ongoing financial stability.

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Frequently asked questions

What is the fastest way to build business credit?

The fastest way to build business credit is to establish a business entity, obtain an EIN, open a business bank account, and start using business credit cards responsibly while ensuring timely payments and monitoring your credit report regularly.

How often should I check my business credit report?

It is advisable to check your business credit report at least quarterly to ensure accuracy and to promptly address any discrepancies.

Can I use personal credit to build business credit?

While personal credit can sometimes influence your ability to get business credit, it is important to build a separate business credit profile to ensure your business's financial health is independent of your personal finances.

How do I dispute errors on my business credit report?

To dispute errors on your business credit report, contact the credit bureau reporting the error, provide documentation supporting your claim, and follow up regularly until the error is corrected.

What are the best business credit cards for new businesses?

The best business credit cards for new businesses often offer rewards, low interest rates, and benefits such as cash back or travel points. Examples include the Chase Ink Business Cash Card and the American Express Blue Business Cash Card.

How does a business line of credit differ from a business loan?

A business line of credit provides flexible, revolving access to funds up to a certain limit, allowing you to borrow as needed and repay over time, whereas a business loan provides a lump sum of money that is repaid with interest over a fixed term. 

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