Business Credit 101: What You Need to Know| Credit.com

You might know all about your personal FICO score and how to keep it in good shape. But did you know your business could have a rating of its own? That rating can be important when it comes to financing or working with certain business partners. If you’re ready to learn more, think of this guide as your business credit 101 class.

What Is Business Credit?

Business credit can refer to two things. First, it can mean the credit extended to a business as opposed to a person. A common example is a business credit card, which is used to cover business expenses. Second, business credit can refer to the creditworthiness of the business as an organization. Lenders, business partners and others can evaluate this worthiness by looking at the business’s credit report and score.

That’s right. Just like you have credit scores and reports with multiple bureaus, your business may also have these files and scores.

Why Does Business Credit Matter?

Business credit matters because it can open—or close—financial doors. If your business credit history is lackluster or even poor, people and other companies are less likely to work with you or invest in you. They’re certainly less likely to loan your business money.

But if your business has good credit, you may find more opportunities for financing. That can help you buy the equipment you need or invest in other efforts that help you grow your business or ensure long-term success.

Why can’t you just use your personal credit? First, if you take out personal loans to pay for business expenses, you’re wholly liable for the debt. And if your business fails, the creditor could come after your personal assets, such as your home. So when you keep business separate, it helps protect your personal credit.

Business Credit Agencies

Three major agencies gather business credit information and use scoring models to calculate business credit scores. Those are Experian, Equifax and Dun & Bradstreet. Although Experian and Equifax provide personal credit scores and reports, your business credit score is completely separate. Below, we’ve summarized how these bureaus score you.

Dun & Bradstreet

Dun & Bradstreet provides users what it refers to as a PAYDEX score. It ranges from 1 to 100. This score is based in part on whether the business makes payments on time to creditors. To get a Dun & Bradstreet score, you need a D-U-N-S number and an active trade line with at least three vendors.

Equifax

Equifax offers a number of credit reports for businesses. Business risk scores include options for comprehensive credit data profiles that help lenders understand whether a company is likely to make payments on its debts. Interested parties may also be able to look at data that helps predict a business’s chances at success.

Experian

Experian offers Intelliscore Plus. It rates businesses on a scale of 300 to 850 related to how much of a risk they might be. Much like your personal credit score, the higher the number, the better.

How to Establish Business Credit

You establish personal credit by taking out a loan or getting a credit card. The lenders report to the credit bureaus, and your credit history is automatically established. But that’s not always the case with business credit. Follow these steps to establish a credit history for your business.

1. Create a Business Structure

You need a separate business structure so that the entity can establish credit that isn’t attached to you personally. That’s easier to do with a corporation or LLC than it is with a sole proprietorship. Make sure to always consult legal professionals when setting up your business.

2. Register for an Employer Identification Number

You may need an employer identification number to establish accounts in the business’s name. You’ll want to establish separate accounts so you can separate personal and business finances. Otherwise, the credit you build up while doing business might just be personal credit.

3. Register for a D-U-N-S Number

This is the first step to creating a credit history with Dun & Bradstreet. You don’t necessarily need to sign up for a number or account with the other agencies. However, you can sign up for products with each one to help you gain access to your own business credit data or the credit scores of potential partners or B2B customers.

4. Open Business Accounts

Opening a business account with your business’s legal name helps get your business on the credit agencies’ radars. Here are some accounts you can open:

Business bank account
Business phone line that’s listed
Business credit card or loan

5. Start Using Your Credit

Use your business lines of credit responsibly. Make payments on time, keep debt amounts as low as possible and don’t apply for tons of business credit accounts all around the same time. That’s especially true if you’re getting declined for business credit. It may be better to figure out why you’re not getting approved and fix those issues before you try again.

How to Improve Your Business Credit Score

If your personal credit score is low, that can make it harder to get approved for credit. And even if you do get approved, a low score can mean a higher interest rate. That means more expensive credit.

The same is true with business credit scores. If your business’s credit history is lackluster, you might find that partners are less likely to work with you or that banks won’t lend you the money you need to grow. Here are a few tips for improving your business score.

Pay down outstanding business debt. Credit utilization can be an important factor for your business credit score just as it is for personal credit scores.
Don’t close old accounts. A credit history that’s older helps indicate that your business has been around for a while. That can make you a more appealing partner for many lenders.
Ask vendors and other partners if they can report to business credit agencies. If you’re making timely payments to vendors all the time and not getting credit for it with the agencies, lenders may not be able to see how reliable your business really is.

How to Check Your Business Credit Score

You typically can’t get a free business credit score like you can with personal credit. You can pay for business credit monitoring via a number of services, though, and that gives you access to your reports. You might also be able to invest in products with the business credit agencies so you can see your scores and reports as needed.

The Bottom Line on Business Credit

If you have a business, you need to worry about two credit scores—your score and your business score. You can easily invest in a service such as ExtraCredit to monitor your personal score.

Monitoring your business credit may take a bit more work—but it’s worth it. When you know you have decent business credit, you can apply for business loans and credit cards with confidence. If you’re ready for that step in your business, check out the Credit.com marketplace for potential options.