You want to build your business credit and want to know the most effective and fastest way to do so.
Perfect. You are in the right place.
Business credit is extremely underrated and overlooked by most businesses even though it is a key ingredient to business success.
So in this post, we will be going over what business credit is, and everything you need to know about it.
This includes the:
- big benefits of it,
- perfect steps to build it,
- top vendors and business credit cards for small businesses, and
- how to monitor it
We think you are ready for a play-by-play process on how to get business credit quick!
Let’s get started.
What is Business Credit?
There are 4 things we want you to know
Business credit is a company’s ability to buy something today and pay for it at a later date.
You establish business credit based on the repayment history of your business.
Business credit is tied to your businesses’ EIN, which is like a Social Security number for your business. We’ll be going over how to get one later in the post.
And there are 3 major business credit bureaus: Dun & Bradstreet, Equifax, and Experian.
Benefits of Business Credit
Now that you know what business credit is, let’s look at 4 big benefits of business credit:
1. Higher Limits
The first big benefit of business credit is the higher limits that you can get approved for compared with your personal credit.
According to data from Experian, the average personal credit limit is around $30,000, while the average small business credit card limit is about $56,000.
We’ve seen instances where the business credit limit is more than 2-3x higher than someone’s personal credit limit.
Higher limits mean more purchasing power for your business that can go toward things like tools, technology, rent, and inventory.
2. Utilization Freedom
With a personal credit card, your credit score is negatively affected if you use more than 30% of your credit limit.
Even if you pay the card in full each month, your credit score will plummet.
But with a business credit score, utilization is not a major factor that affects your score.
This gives you the freedom to use your business credit limits without worrying too much about your utilization.
3. Does not Affect Your Personal Credit
The third, and likely biggest benefit of business credit is that business credit does not affect your personal credit.
Yep, we’ll say it again for the folks in the back…
Business credit does not affect your personal credit.
So you can be rest assured that if some unfortunate event did happen where your business credit is ruined, it will only affect that business.
It will not affect any other current or future businesses you create.
We do have to make one disclaimer that there are some business credit cards that do report on your personal credit like Capital One and Discover cards.
While others like Bank of America and Citi cards only report to commercial credit bureaus.
4. Better Approval chances, terms, and prices
The fourth benefit of business credit is that when it is good, you typically have higher chances of approval, better terms, and better pricing on:
- lines of credit,
- vendors, and
And this ultimately saves your business money and allows you to use more capital to grow your business.
Now, let’s talk about the thing you are all here for, the steps on how to get business credit quick.
7 Steps on How to Get Business Credit Quick
Now, let’s go over the 7 steps to establish and build your business credit.
Step 1: Incorporate and register your business
Those who operate as a sole proprietorship or general partnership have no separation between them as a person and their business as the business is the owner.
This means that a sole proprietorship or general partnership can’t have a separate business credit history from their personal credit history.
By incorporating a business or forming an LLC, you create a business that is legally separate from the owner.
Read this post to learn more about how to incorporate a business.
Step 2: Get an EIN
As mentioned above, a business federal tax identification number, also called an EIN, is a nine-digit number that acts like the social security number for the business.
Businesses need an EIN to open a business bank account and obtain business credit.
Some businesses also require an EIN from their vendors in order to pay them for services.
Here’s how to get one, if you don’t have one already:
- Start a Google search for “EIN”
- Click on the first organic link from the IRS
- Click “Apply Online” under step 3
Step 3: Open a business bank account
You will want to open a business checking account in the legal name of the business.
Once open, be sure to pay for all transactions using your business bank account, including your credit card payments, if you have one.
This creates a clear separation between personal and business expenses.
Step 4: Get a business phone number
You will want to get a separate phone number for your business that is in your business name. This can be through a:
- VOIP service like Google Voice, or
- cell phone provider
Also, make sure your business number is listed within directories such as the Better Business Bureau, YP.com, and Angie’s List.
Step 5: Register with Dun & Bradstreet to get a D-U-N-S number
Dun & Bradstreet is one of the top three business credit bureaus. Here’s how to get a D-U-N-S number for your business.
- Go to Dun & Bradstreet’s website at dnb.com
- Click on “D-U-N-S number” in the menu
- Then click “Get a D-U-N-S Number” and go through the steps
Now that you have established business credit, you can start to build it. Let’s move on to the next step to see how.
Step 6: Establish trade lines with vendors/suppliers who report
This step is extremely important!
By establishing trade lines with vendors and suppliers who allow you to buy products today, pay later, and report on your business credit…
…you can easily start the process of building up your business credit payment history.
When doing so, apply to at least 3 of them and make sure they report on your business credit report.
There are plenty of companies out there but here are three very popular trade lines you can start with ASAP.
- Shirtsy – Shirtsy is an online store to buy customized apparel for your business.
- ULINE – Uline is one of the top sites for packaging materials and supplies.
- Quill – Quill provides cleaning & office supplies for your office space.
Step 7: Apply for a business credit card
Next, apply and obtain at least one business credit card for your business.
To help you get started, you can check out this post we have published previously that went over the best business credit cards.
No matter which one you choose, make sure they report on your business credit.
And as mentioned previously, if you want to avoid affecting your personal credit, be sure the credit card you choose only reports on your business credit as some report on both business and personal.
Step 8: Pay vendors early
Paying on time will keep you away from negative scores and get you a good business credit score.
But what most people don’t know is that paying early will get you the highest scores.
If possible, pay off your credit lines early to help boost and maintain your scores.
As you can see, in just a few simple steps you can go about how to get business credit quick.
Now let’s discuss how your credit scores are calculated.
How Credit Scores are Calculated
Just like the top three personal credit bureaus, the top three business credit bureaus all have different algorithms for determining your score.
But even with different algorithms, here are the most common factors that fall into three categories:
- Payment history
- Negative remarks such as charge offs, delinquent invoices, or legal filings
- Demographics, which means the number of trade lines, size of business, and years on file
Note that most bureaus need minimum information such as one tradeline to generate a score.
How To Monitor Your Business Credit
Lastly, let’s discuss how to monitor your business credit.
A survey by Wall Street Journal found that 25% of small business owners found credit-damaging errors on their reports after looking.
That’s why it’s definitely important that you actively monitor your report so you at least know where your business stands.
All three bureaus will provide you your business credit report but they will charge you for it.
Luckily, there are several places online such as Nav and CreditSignal, that will give you options to view your credit file for free.
Well, there you have it. A complete guide on how to get business credit quick.
If you need more help with managing your business finances, we offer various solutions for your specific needs.
Simply contact us today to get started!