How to build business credit in 10 simple steps

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

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In this article, we’ll explain some effective ways to build business credit quickly, whether your company is in the startup phase or been at it for years. Read on for the 10 best ways to build business credit. 

Why building business credit is important

Having a strong business credit profile improves your chances of being approved for any financing, as lenders will want to know that you can repay them on time. Generally, lenders require a credit score of at least 500 to approve you for a small business loan. 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.

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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 good credit score can give you leverage when negotiating contracts and pricing. This can be especially helpful in industries where contracts are negotiated on an ongoing basis, such as professional services.

How to build business credit in 10 steps

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

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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:

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.

2. Apply for an Employer Identification Number (EIN) 

An EIN is like a Social Security number for your business. If you operate a U.S.-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 to establish the legitimacy of your business entity in the eyes of potential lenders. You can start the process on the Dun & Bradstreet website by entering in 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-day payment term instead of paying cash upfront. With a net 30-day 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 credit bureaus

There are a few credit bureaus that are known as the "major credit bureaus,” and those are the aforementioned Dun & Bradstreet (issuers of the Paydex score), Experian, and Equifax. It's important to research the vendors you're considering doing business with to make sure they report payment information to these bureaus so you can build business credit. 

7. Make timely payments

Once you've established credit with vendors and suppliers, making on-time payments is crucial to keep your 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. Check your credit reports regularly

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

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You can order a single business credit report from one of the three major business credit reporting bureaus 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 so you can stay on top of your budget.

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Ramp's corporate card is a particularly potent solution that also 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 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.

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Another reason that having a good relationship with your lender can benefit your business is that if you're unable to make a full or partial payment, you might be able to work out some form of payment accommodation. This obviously shouldn't be a regular occurrence for you, but if you find yourself financially stuck, a good relationship could go a long way for you and your company. ‍

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Discover Ramp's corporate card for modern finance

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Bonus step: Keep your accounts open

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

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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. Just make sure you pay off the balance each month so you don't incur additional interest charges.

How long does it take for a business to build a good credit score?

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 without any history.

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In the short term, applying for financing or taking on debt may help to 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 become a real game-changer for your business credit score. Although they are used interchangeably, there are some critical distinctions between charge cards and regular credit cards.

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

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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, as charge cards don't allow you to overspend, since the bill doesn't carry over like it does on traditional business and consumer credit cards alike.

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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.

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To calculate your credit utilization, you 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. Consistently having a lower credit utilization is usually better, but keeping it under 30% is the best way to keep a higher credit score.

Build your credit and control spending with Ramp

One of the best ways to bypass the headaches of traditional business credit cards (out-of-control bills, manual expense tracking, employee mismanagement) is to sign up for a charge card. 

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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. 

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Ramp’s offerings extend well past the card itself, encompassing a sophisticated expense management platform that gives you a real-time, bird’s-eye view of your finances at any given point.