To keep your business growing, you need a strong business credit profile.

If you’re looking to build – or rebuild – your business credit, follow these six steps to success:

What Is a Business Credit Score?

A good business credit score can mean lower interest rates and more favorable terms.

Your business credit score is a key indicator of your enterprise’s stability and credibility. Like your personal credit score, it’s based on a mix of factors, including payment history, credit utilization, and account age. But unlike your personal credit score, it’s searchable by anyone, including potential customers, suppliers, insurers, investors, and lenders.

Without a business credit profile, your ability to secure financing and investments will be limited to what your personal credit can support. A good business credit score can mean lower interest rates and more favorable terms.

1 Register Your Business

When you start a business, it’s easiest to start out as a sole proprietorship, perhaps under a DBA (doing business as) or trade name. But, it’s often advisable to form an LLC (limited liability company) to firmly establish your business as a separate entity. This can help you build business credit while protecting your personal credit and assets from debts or legal claims against your company. If eligible, you may then choose to elect S corporation (S corp) status with the IRS to enjoy additional tax advantages.

Use your official business name consistently with vendors and creditors, and ensure that it appears correctly on your website and other online directories.

2 Request a D-U-N-S® Number

A D-U-N-S® (Data Universal Number System) number is a unique set of digits that allows you to open a credit file with Dun & Bradstreet, one of the main business credit reporting bureaus (along with Equifax and Experian). This number is also required to bid on some government and private contracts and apply for certain grants. You can get a number for free from Dun & Bradstreet, but be prepared for a 30-day wait.

3 Open a Business Bank Account

When it comes to building business credit, it’s vital to have a dedicated business bank account in your company name. This will enable you to separate your finances, set up trade accounts with suppliers, and apply for business credit cards and loans.

Cultivating a positive relationship with an experienced business banker can also provide you with valuable insider insights and tailored advice for pursuing your goals.

4 Employ the 5-3-2 Rule

This simple rule will help you establish and cultivate a strong business credit profile:

  • Establish five active trade accounts: The credit bureaus will consider your business more creditworthy when you buy inventory or materials and promptly pay invoices to at least five third-party vendors. But unlike with personal credit, commercial creditors aren’t generally required to report account activities to the bureaus. Ask your vendors and choose who you do business with strategically.
  • Maintain three business credit cards: Keep at least three dedicated business credit card accounts in active use. Select these cards and use each one for a specific need. For example, one card might be your travel card, another your large-purchase card, and the third your everyday supplies card. Make sure the issuer reports to the bureaus, and aim to keep your credit utilization ratio under 30%.
  • Pay off two loans in full: Having a diverse credit mix can help you build a robust credit profile. To do that, take out a small secured or unsecured installment loan with monthly payments you can easily afford. Once it’s paid off, apply for and pay back another one. You’ll be able to access cash to grow your business while proving to the bureaus that you can responsibly manage borrowed money.

5 Pay on Time

Your payment history is the single most important factor that goes into your credit score – on both the personal and the business side.

To ensure that you pay your credit bills and vendor invoices on time every time, consider setting up automated payments from your business bank account. That way, you won’t have to keep track of different due dates, and you can maximize your working capital by timing payments for the very end of each grace period.

6 Monitor Your Credit

Check your business credit report regularly for errors or signs of fraud. Unlike personal credit reports, you aren’t entitled to a free one every year, but it’s well worth the modest fee. If something’s wrong, file a dispute with the reporting bureau without delay.

By staying safe and staying informed about the factors that influence your business credit, you can make better strategic decisions for your enterprise.

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For more personalized guidance about boosting your business’s borrowing power, consult your financial institution.

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