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Establish Business Credit & Raise Your Score

Establish Business Credit & Raise Your Score

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This article was last updated Dec 10, 2013, but some terms and conditions may have changed or are no longer available. For the most accurate and up to date information please consult the terms and conditions found on the issuer website.

Anyone running a business needs good credit to help them borrow money, pay for inventory over time, and apply for various loan products or business credit cards. While you may have an established credit history and know how to boost your credit score as an individual, however, the process is not really the same when it comes to raising the credit profile of a business.

Business credit is tracked by different agencies from personal credit – or at least within specific departments of the major credit-reporting companies. The primary source of business credit information is Dun & Bradstreet, the dominant player in the business credit tracking and rating industry. Other top agencies that participate in this important business reporting niche include Experian Business, Equifax Business, and Business Credit USA.

What many business owners don’t understand is that reporting to these credit bureaus is done on a voluntary basis. You could theoretically be in business for many years and still fly beneath the radar of the large business credit reporting agencies simply because nobody bothered to provide them with any relevant data about your business or its loans and other credit-related activity. You will want to follow certain standard procedures and strategic steps, as it’s important to be proactive about setting up good credit as a business. and

Let’s take a look at how the process works.

Open a Business Bank Account

If you do not already have a DBA (“doing business as”) name registered in your city or state and a business tax identification number, you need to acquire those. That kind of documentation is required in order to open a commercial or business checking account, which is the next step.

Get a DUNS Number

Next, contact Dun & Bradstreet and find out how to apply for a Dun & Bradstreet business number or DUNS number. That application process usually takes about a month, but if you want to speed it up you can pay an additional fee for expedited service.

Buy from Vendors who Report to Credit Agencies

Now you will want to start to open accounts with vendors and suppliers who will report your payment transactions to the appropriate credit bureaus such as Dun & Bradstreet and Experian Business. Do you buy office supplies, inventory, or restaurant equipment from a vendor? Find out if they do regular reporting to the credit agencies. Those kinds of relationships with companies who report are critical to the establishment of business credit. You can start with small purchases, just pay before the due date on the invoice if possible because that will help strengthen your business credit profile and score. As you can afford to, gradually increase your purchases or approach your banker and take out a manageable loan you can quickly repay to further bolster your credit. Just be sure you never make a late payment, because that could torpedo your long-running efforts.

Track Your PAYDEX Score

While personal credit scores are usually calculated by FICO, business scores are tabulated by PAYDEX. Unlike FICO scores that range from around 300 to 850 points, PAYDEX uses a rating scale of zero to 100. A score under 25 indicates that your business does not yet have an established credit history or has really bad credit. Scores from 25 to 49 are fair, so you may qualify for a loan but will pay higher rates and fees. With a score from 50 to 79 lenders will consider you a decent candidate who qualifies for good standard rates. Vendors will also see this kind of rating as a sign that you can be trusted to repay your accounts in a timely fashion. Those businesses with scores of 80 or higher have great credit and probably pay their bills before they come due, so that’s the kind of higher echelon PAYDEX bracket you want to work toward. You can also track your profile on the other reporting agency sites. If you go to Experian Business, for example, you can view your business files, which shows data such as how much credit you have offered to you, how much of it you are currently utilizing, and what your track record is for paying bills on time.

Other Helpful Tips and Resources

For expert tips and information about establishing and growing your business credit, the Small Business Administration provides some of the best resources. The Better Business Bureau also makes a smart recommendation that can be easy for businesses to overlook. They say that once you have your business name, address, and phone number, maintain it so that it is not just easy for customers to find you, but also easy to be consistently tracked by credit-reporting agencies.

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