How to Establish and Build Business Credit

Establishing and building credit is crucial to long-term success, both personally and for your business. Strong business credit allows you to access better financing options, lower interest rates, and higher purchasing power. Let's go through the necessary steps to establish and build business credit so you can get started on a solid financial foundation.

Understand the Importance of Business Credit

Like personal credit, business credit can bring growth and success or make expanding more challenging. Having business credit separate from personal credit affects different areas of your business:

• Loan Approval: Lenders often look at business credit scores to assess the risk of lending them money
• Interest Rates: Just like with personal credit, a strong business credit profile can help to get a lower interest rate when borrowing money
• Vendor Terms: Other businesses, such as suppliers, might offer better payment terms if they see a company has good credit
• Insurance Premiums: Strong credit histories can also help lower insurance premiums
• Financial Security: It's not a matter of if hard times will hit, but when, and having good business credit can help you weather those financial or economic storms

How Do I Establish Business Credit for the First Time

A practical way to build business credit is to establish trade credit with vendors or suppliers. Trade credit lets you buy goods or services on credit and pay for them later. To do this, choose vendors who report. Not all vendors report to credit bureaus, so select those that do to ensure payments are reflected in your business credit history. You can also request credit terms with vendors. Start with small orders and ask for net 30 or 60 terms (pay within 30 or 60 days), and consistently pay on time to build a positive credit history.

How to Build Business Credit with an EIN

Your business's financial activities must be reported to business credit bureaus to build credit. An easy way to make sure that happens is to open and use a business credit card or line of credit. Since these are offered by banks, they'll be reported to business credit bureaus (more on those later) to help establish and build your business credit score. When building that score, many of the same rules apply as building personal credit. That is, make payments on time, keep your credit utilization low, and don't take out more credit than you can reasonably pay back.

Monitor and Maintain Your Business Credit

There are three major business credit bureaus you can use to monitor your business credit: Dun & Bradstreet, Experian, and Equifax. You can register with Experian and Equifax to start building your business credit profile and ensure financial activities are reported correctly. For Dun & Bradstreet, you'll need a no-cost D-U-N-S number, a unique identifier used to track credit history.

Maintaining your business credit, as you may have guessed, is ongoing. Regularly check your business credit reports to dispute any inaccurate information, and follow these steps to keep your good credit going:

• Pay bills on time
• Manage credit utilization (like personal credit, try to use 30% or less of available credit)
• Limit credit inquiries
• Again, dispute any errors with the relevant credit bureau

What is the Fastest Way to Build Business Credit

Start with getting an EIN and DUNS number, then (as said earlier) work with your vendors to establish trade lines and request credit terms. If you can, do your best to pay early (Dun & Bradstreet assigns a score called Paydex that measures a business' payment history, so paying early means a higher score). After that, open a business credit card, use it often, and pay off as much as possible each month to keep your credit utilization low. If you have history with a vendor that would be willing, ask for a trade reference. This is a report of your business' past transactions with that vendor, which you can manually add to your credit file at Dun & Bradstreet. You can ask those across different industries, including accountant or payroll service, uniform supplier, and even your utility company. Keep in mind that any negative information, like a late payment, could also be in that file which will count against your business credit score.

Does Personal Credit Affect Business Credit

Yes, it does in some circumstances, particularly for startups and small businesses. If your business is a sole proprietorship, your personal credit will be considered when you apply for a business credit card because your personal assets are directly tied to your business. That being said, having personal and business finances separate and clearly defined can help you build business credit and helps to protect your personal assets. To do this:

• Register Your Business: Choose a legal structure (e.g., sole proprietorship or LLC) and register with the appropriate state and local offices
• Get an EIN (Employer Identification Number): This is, in essence, a social security number for your business, used for tax purposes and opening business accounts
• Open a Business Bank Account: This is only for money related to business transactions
• Apply for a Business Credit Card: This helps to build credit history for your business

What Can You Do with Good Business Credit

Leverage good business credit to support growth and success in the future. The three basic advantages include securing financing, negotiating better terms, and expanding your business. Expanding your business might mean developing your product line, hiring more staff, or opening a new store.

WaFd Bank is Here to Help

We're in the business of bringing simplicity to yours. If you're looking for straightforward solutions to help you grow your business, contact your local small business officer or open a business account online. You can also check out our wide variety of business services to find solutions that fit what you need, like HR and payroll, customer engagement programs, and ways to open your cash flow so you can get paid faster and use that cash to continue growing your business.