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Establishing a strong business credit score is key to your company’s health, ensuring it survives and thrives into the future. Good credit can make your organization more attractive to investors, help you secure financing from banks more easily, and give you leverage in negotiations.

In this article, we’ll explain some simple and effective ways to build business credit quickly, whether your company is in the startup phase or you’ve been at it for years.

Why building business credit is important

A strong business credit profile improves your chances of being approved for financing because lenders want assurance that you can repay them on time. Lenders generally require a credit score of around 600 to approve you for a small business loan, but some lenders may approve a loan if your score is as low as 500. If you're applying through a bank, this requirement could be closer to 700. A higher score can also yield better terms.

Easier access to capital

When potential investors such as venture capitalists and angel investors see that your business has good credit, they're far more likely to invest. A good credit rating will also open up other funding options, like traditional bank loans and lines of credit or alternative online lenders. This flexibility can be beneficial during uncertain economic times.

Improved cash flow and business reputation

Good credit will help you secure financing quickly and manage cash flow better, as it can give your business an influx of cash during economic downturns. This is especially important if your business needs to purchase inventory or keep up with other business expenses to meet growing customer demand.

When other businesses and investors see that your company has good credit, it can help you build credibility and trust. This can give your organization a competitive edge in the marketplace and make customers more likely to do business with you.

Increased negotiating power

A strong business credit score can give you leverage when negotiating contracts and pricing. This can be especially helpful if you’re in an industry where you negotiate contracts on an ongoing basis, such as professional services.

How to build business credit quickly

The process of establishing business credit begins from the moment you start laying out your enterprise’s structure and get an EIN.

Once you've established credit for your business, you can work on building your score. Here are 10 steps for establishing and building your business credit quickly:

1. Formalize your business structure

The first step to establishing your business credit is to form a legal entity, such as a limited liability company (LLC) or corporation. This separates your personal credit history and finances from your business finances and gives you limited liability protection.

Does personal credit impact business credit?
Yes, your personal credit history can impact your business credit, especially in the early days of establishing your business credit profile. Many lenders and card issuers will require a personal guarantee based on your own credit when your business is new. But as you establish business credit, the reliance on your personal credit decreases. Over time, your business can qualify for credit on its own.

2. Apply for an Employer Identification Number (EIN)

An EIN is like a Social Security number for your business. If you operate a US-based sole proprietorship or LLC, you can apply for an EIN on the IRS website. This number is used to identify your business when filing taxes and opening various accounts with lenders.

3. Apply for a free DUNS number

Dun & Bradstreet is one of the major business credit reporting agencies (more on that in step 6), and establishing credit with the organization starts with signing up for a free DUNS number. This will help establish your business’s legitimacy in the eyes of potential lenders. You can start the process on the Dun & Bradstreet website by entering your ZIP Code and business name.

4. Open a business bank account

Opening a dedicated business checking account can protect your personal credit score and finances from any legal or financial issues arising from your business. To open a business bank account, you'll have to provide your business's EIN, legal documents, and other information to verify your business's identity.

5. Establish credit with vendors and suppliers

Establishing credit with vendors and suppliers is one way to build your business's credit. Start by asking to be put on a net 30 payment term instead of paying cash upfront. With a net 30 payment term, you'll have 30 days to pay the bill after receiving an invoice. As you make on-time payments, you’ll demonstrate your financial responsibility. This, in turn, may increase your chances of being approved for more significant financing in the future.

6. Partner with vendors who report to major business credit bureaus

The major business credit bureaus include the aforementioned Dun & Bradstreet (issuers of the Paydex score), Experian, and Equifax. It's important to research the vendors you're considering partnering with to make sure they report payment information to these bureaus so you can build business credit.

7. Pay all bills on time

Once you've established credit with vendors and suppliers, making on-time payments is crucial to keep your business credit score up. This will help build a strong business credit history, which is one of the most critical factors in improving your firm’s credit score. You'll also free up available credit, which can help boost your overall credit utilization and creditworthiness.

8. Monitor your credit reports regularly

It's important to check your business's credit reports regularly to quickly address any errors or inaccuracies in your business credit file. You should review your reports at least once a year, ideally once a quarter.

You can order a single business credit report from one of the three major business credit reporting agencies or opt for a package of reports to review all three simultaneously. This will help you keep track of your business's financial information and improve your credit score over time.

9. Apply for a business credit card or corporate card

Applying for a business credit card or corporate card can help you build your business credit. With a corporate card, you or your employees can make purchases up to a specific limit, and you can track spending to ensure you stay on top of your budget.

Ramp's corporate card is a potent solution that helps you build business credit by reporting your payments to credit bureaus. You'll also get access to expense management, tracking, analytics, and more.

10. Build a relationship with lenders

When you're ready to apply for financing, building relationships with lenders who are familiar with your business is crucial. A lender who knows your operations and financials will be better suited to determine if you're eligible for financing and can offer more competitive interest rates.

Moreover, if you ever find yourself unable to make a full or partial payment, a strong relationship with your lender might help you negotiate some form of payment accommodation. While this shouldn't become a regular occurrence, a good relationship can be a lifesaver for you and your business.

Discover Ramp's corporate card for modern finance

Bonus step: Keep your accounts open

Just like with personal credit accounts, having older accounts open longer can help boost your credit score. Credit bureaus look more favorably upon accounts with longer histories, so you want to keep your accounts open for as long as possible.

If you're no longer using a particular credit card or loan, consider keeping it open and using it occasionally to help maintain your credit score. Be sure to pay off the balance each month so you don't incur additional interest charges.

How long does it take to build business credit?

It can take a new business up to three years to build a strong credit score. If you're just getting started, it's important to know that companies with an established history of timely payments and responsible financial management may be able to develop their credit faster than those with no history.

In the short term, applying for financing or taking on debt may help increase your company's credit score. However, it can also have a negative impact if not managed properly. Ultimately, the best way to build business credit is by consistently making timely payments and establishing relationships with credit providers who report payment information to major credit bureaus.

How charge cards help you build business credit

Understanding the difference between credit and charge cards can be a game-changer for your business credit score. Although the terms are often used interchangeably, charge cards and credit cards have some critical differences.

Credit cards are revolving lines of credit that allow you to purchase items and pay them off over time, while charge cards require you to pay your balance in full at the end of each billing cycle. Charge cards can help boost your business’s credit score since the balance is paid on time and in full each month.

This helps to demonstrate financial responsibility and can be a great credit-building practice for your business. It can also help you foster better spending habits for your company: charge cards don't allow you to overspend because the bill doesn't carry over as it does on traditional consumer and business credit cards.

Credit reports will list both charge cards and credit cards. However, with business credit cards, your credit utilization can mean the difference between a good business credit score and a bad one. To calculate your credit utilization, take your total balance and divide it by your total credit limit, as shown below:

Credit Utilization = Total Balance/Total Credit Limit

For example, if you have a credit limit of $10,000 and your total balance is $2,000, your credit utilization would be 20%. A good rule of thumb is to keep your utilization below 30%, which can help boost your business's credit score.

Build business credit and control spending with Ramp

One of the best ways to bypass the headaches of traditional business credit cards—crazy interest rates, manual expense tracking, no spend management features—is to sign up for a charge card.

Ramp’s corporate charge card allows you to keep tight controls on spending, receipt tracking, and monthly payments. Plus, we report to the major credit bureaus, so you can build your firm’s credit payment history and rating at the same time.

Ramp’s offerings extend well past the card itself, encompassing a modern expense management platform that gives you real-time visibility into your finances whenever you need it.

Try Ramp for free
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Former Sr. Content Marketing Manager, Ramp
Prior to Ramp, Stefanie worked as a finance reporter at Institutional Investor, where she covered everything from options to pension funds. She graduated from the University of Delaware with a degree in English and a concentration in journalism and later earned an MA in education from NYU. When she isn't immersed in content and thought leadership, Stefanie loves to play any and all racquet sports.
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