Step 03 Step by step
How to build business credit.
Business credit doesn't appear on its own. It's built when your business exists as an entity, has consistent details and pays vendors that report those payments. These are the first steps, in order.
There's no guaranteed timeline. It depends on your business, your vendors and when they report your payments. Each bank, vendor or lender sets its own requirements.
1. Make your business official
An LLC or a corporation exists legally apart from you, and it's what most banks, vendors and business credit bureaus expect to find. It's registered in the state where your business operates. Choosing the type of entity has legal and tax consequences: talk it over with an accountant or an attorney. Is it required? We answer that in Do I need an LLC?
2. Get your EIN
The EIN (Employer Identification Number) is the number the IRS uses to identify your business. You apply for it for free at irs.gov, and you'll need it to open the business's bank account and for almost any business paperwork. We explain it in EIN and D-U-N-S number.
3. Open a bank account in the business's name
Use the business's legal name and EIN. From then on, the business's income and expenses go through that account, and yours go through yours. It's the foundation for everything else: your numbers stay clear and the business starts to build a history of its own.
4. Make your business easy to identify
Bureaus and vendors cross-check information. Use exactly the same details everywhere:
- The legal name, exactly as it's registered.
- The business address.
- A business phone number.
- A business email and website.
An address written two different ways can leave your business's information split up or incomplete.
5. Apply for your D-U-N-S number
Dun & Bradstreet identifies the businesses in its database with a nine-digit number: the D-U-N-S number (also written DUNS). That number opens your business's file in its database, where the PAYDEX score is later calculated. Dun & Bradstreet offers a free option to apply for it; paid services to speed it up are not required.
6. Open accounts with vendors that report
Many vendors sell to businesses with time to pay, for example 30 days: these are “net 30” accounts. If the vendor reports your payments to the business credit bureaus, every invoice paid on time adds to your history. Before opening an account, ask whether they report and to which bureau.
7. Pay on time, or early
Payment history carries the most weight. On Dun & Bradstreet's PAYDEX scale, which runs from 1 to 100, paying on the agreed date is worth about 80 points; paying before the due date can push it higher. The score is also weighted by dollar amount: accounts with more credit count more than small ones. And payments that nobody reports don't count. Source: Dun & Bradstreet.
8. Review your business profiles
Check your business's profiles at Dun & Bradstreet, Experian Business and Equifax Business from time to time. If you find a wrong detail, ask them to correct it. Dun & Bradstreet lets you review and update your business's information for free on its site. Seeing your scores, like PAYDEX, on an ongoing basis is a paid service.
Common mistakes
- Paying business expenses with your personal card, or the other way around.
- Using different business details from one application to the next.
- Relying on a single account that reports.
- Paying late because “it's just a vendor.”
- Paying for promises of guaranteed credit or sure approvals.
What about my personal credit?
At first, many business cards and loans ask for a personal guarantee or check your personal credit history. The goal of building the business's profile is that, over time, the business can stand on its own, but each vendor sets its own terms. If you still have questions about the difference, start with business credit vs. personal credit.