How To Quickly Build Up Your Business Credit

Key Takeaways

  • Explore the importance of good business credit for accessing financing, lower interest rates, and trade credit as a business owner.
  • Key steps for building business credit include establishing a separate legal entity, opening a business bank account, applying for business credit, and monitoring the credit score.
  • Understand and manage business credit, including the necessity of differentiating business credit from personal credit.
  • Learn about the critical role of a business’s credit report, which includes payment history, credit utilization, and length of credit history.
How To Quickly Build Up Your Business Credit

Building up your business credit is an essential part of growing a successful business. Good business credit can open doors to financing, trade credit, and lower interest rates. However, building up your business credit can take time, which can be challenging for business owners who need to access funding quickly. The good news is that there are a few key steps you can take to quickly build up your business credit.

In this blog post, we will outline the basics of business credit and why it’s important, then provide you with a step-by-step guide to building up your business credit quickly. We will discuss the importance of establishing a separate legal entity for your business, opening a business bank account, applying for business credit, and monitoring your credit score. By following our advice, you can quickly build up your business credit and access the financing you need to grow your business.


Business Credit Explained

Before we dive into how to quickly build up your business credit, it’s important to have a good, foundational understanding of what exactly business credit is and what’s included in your business credit report.

Business credit refers to the creditworthiness of a business. It’s important to note that a business’s credit is separate from the personal credit of its owners. A business’s credit is essentially a measure of the business's ability to pay back debts and fulfill financial obligations. Building business credit is crucial for financing your business, negotiating good credit payment terms with vendors, and establishing credibility with customers and partners. Establishing and maintaining decent business credit doesn’t happen overnight, but with time, consistency, and good habits, you are sure to create a healthy business credit.

Business credit is determined by a variety of factors, including payment history, credit utilization, length of credit history, and public records. These elements are all included on a business’s credit report. A business credit report is a document that provides information about a business's creditworthiness and financial history. It includes information such as the business's credit score, payment history, credit utilization, length of credit history, public records such as bankruptcies and liens, and other financial information. Business credit reports are compiled by credit reporting agencies, which collect and analyze data from various sources including banks, credit card companies, and public records.


Why Business Credit Is Important

Business credit is essential to the success of any business, regardless of its size. Good business credit can help you access financing, trade credit, and better terms with vendors and suppliers. It can also make it easier for you to get approved for loans, leases, and lines of credit, which can be crucial for growing your business.

Strong business credit can also help you establish your business as a trustworthy and reliable partner in the eyes of lenders, investors, and other stakeholders.

On the other hand, poor business credit can limit your access to funding and make it harder for you to compete with other businesses. It can also cause your business to get higher interest rates, stricter repayment terms, and damage to your business's reputation. It's vital that you take steps to build and maintain good business credit. The growth and success of your business depends on it.

How To Quickly Build Up Business Credit

Strong, healthy credit takes time, consistency, and effort to build. However, there are a few key steps that can set your business credit off on a good foot and help you to build good credit faster. We’ve identified the five best steps to help you establish and grow good business credit into great business credit. Here they are:

#1 - Understand The Basics of Business Credit

This may seem like an obvious first one, but without a basic understanding of business credit, you cannot establish or build good credit. Business credit is a vital aspect of running a successful business, and understanding the basics of business credit is crucial for business owners. Business credit is essentially a rating system used by financial institutions, vendors, and suppliers to assess the creditworthiness of a business. They use your business credit report and score to make this assessment. The quality of your business credit (poor or strong) helps determine whether your business is reliable enough to extend credit to or do business. They also use your report and score to decide what sort of repayment terms and interest rates to provide your business.

Unlike personal credit, business credit is linked to a company's EIN or Tax ID number rather than a person's Social Security number. The main credit bureaus for business credit include Dun & Bradstreet, Experian Business, and Equifax Business. These credit bureaus track your business's credit history, including whether or not you pay your bills on time and the amount of credit you have available. They also may track your payment history.

One of the most important factors in understanding the basics of business credit is the need to separate your personal credit from your business credit. Separating business credit from personal credit is important because it protects personal assets and helps establish the legitimacy of the business.

Understanding the basics of business credit gives you a solid foundation of knowledge to help you quickly build up positive business credit.

#2: Establish A Business Entity

Again, this one may seem obvious, but it’s vital in your journey to build up your business credit quickly. By separating your personal finances from your business finances, you show lenders that your business is a legitimate entity and can help protect your personal assets. This separation of finances allows your business to build its own credit score and history, which can be critical in securing financing, trade credit, and better terms with vendors and suppliers.

Here are the steps to setting your business up as a legal entity:

  1. Choose a legal structure: Decide on the type of entity you want to form, such as a sole proprietorship, partnership, LLC, or corporation.
  2. Choose a name: Select a name for your business and ensure it's available in your state.
  3. Register your business: File the necessary paperwork with your state's Secretary of State office to officially register your business.
  4. Obtain an Employer Identification Number (EIN): Apply for an EIN from the IRS to identify your business for tax purposes.
  5. Obtain necessary licenses and permits: Depending on your industry and location, you may need to obtain specific licenses or permits to operate your business.
  6. Open a business bank account: Open a separate bank account for your business to keep your personal and business finances separate.
  7. Obtain business insurance: Consider obtaining insurance to protect your business from liability and unforeseen events.
  8. By following these steps, you can establish your business as a legal entity and set yourself up for success in building good business credit.

#3 - Open A Business Bank Account

Having a separate bank account for your business is crucial for several reasons. First, it helps to maintain accurate financial records for your business, which is important for tax purposes and financial reporting. Second, it helps to separate your personal finances from your business finances, which is necessary for establishing good business credit. Finally, it can help to protect your personal assets in the event of legal action against your business.

To open a business bank account, you'll need to follow these general steps:

  1. Choose a bank: Research different banks and choose one that offers the services and features that best fit your business needs. There are lots of choices out there (we can help you choose with our bank comparison articles!) and each one caters to different needs.
  2. Gather required documents: You'll need to provide documents such as your business formation paperwork, EIN, and identification. That’s why it’s crucial to already have an EIN established through your business entity.
  3. Complete the application: Fill out the necessary forms to open the account, including information about your business and its owners. Ensure that it’s 100% accurate, so that you can quickly access your account.
  4. Make a deposit: Depending on the bank's requirements, you may need to make an initial deposit to open the account. Several business banks also have a balance requirement in place to waive the monthly account fees.

It’s not enough to simply open a business bank account, although doing so will help you to quickly start establishing business credit. You also need to manage it wisely, not only to ensure you are effectively building wealth, but building up your business credit to be strong.

Here are some tips for managing your business bank account responsibly after you’ve opened it and made your initial deposit:

  • Keep accurate records: Make sure to record all deposits and withdrawals accurately in your accounting system. This will help you track your business's financial health and provide accurate information for tax purposes.
  • Reconcile your account regularly: Reconciling your bank account regularly helps to ensure that all transactions are accurate and that you haven't missed any discrepancies. Yes, online checking accounts do this automatically these days, but it’s still good to go through each transaction to ensure it’s for the correct amount and that it’s from a reputable business or entity you did business with.
  • Monitor account activity: Regularly check your account activity for any unauthorized transactions or fraudulent activity.
  • Stay organized: Keep track of important documents such as bank statements, checks, and deposit slips in an organized manner for easy reference.
  • Be mindful of fees: Be aware of any fees associated with your bank account and take steps to minimize them, such as choosing a bank with low fees or maintaining a minimum balance. Several of these maintenance fees can be waived if you maintain account requirements.

#4 - Apply For Business Credit

Once you’ve applied for a business bank account you can begin to apply for business credit. This can roughly look like the following:

Build a strong credit profile: Establish a good credit history for your business by paying bills on time and maintaining a low debt-to-credit ratio, even if these both are done through a simple business credit card.

Research potential lenders: Research potential lenders and choose one that offers credit products that fit your business needs. There are tons out there, so spend some quality time looking for perks and specifications that will best help you to grow your business. Consider interest rates, fees, repayment terms, credit limit, etc.

Gather required documentation: Lenders will typically require documentation such as financial statements, tax returns, and business licenses. This is why the above step of establishing your business as a legal entity is critical.

Fill out the application: Fill out the lender's credit application, providing accurate and complete information about your business.

Wait for approval: The lender will review your application and make a decision on whether or not to extend credit to your business, although you can usually tell if you are accepted or not before you receive your official approval through pre-approval.

#5 - Monitor Your Business Credit Score

To monitor your business credit score, you can sign up for a credit monitoring service that specializes in business credit. These services will provide you with regular updates on changes to your credit score, alerts for potential fraudulent activity, and suggestions for ways to improve your credit score. You can also obtain a copy of your business credit report from credit bureaus like Dun & Bradstreet, Experian, and Equifax for a small fee, which will show you your current credit score and any factors affecting it (payment history, trade references, use of credit, etc).

Building up business credit quickly can be achieved if you establish a strong credit profile, separate personal and business finances, and maintain responsible financial practices. By forming a legal business entity, opening a separate bank account, and applying for credit when your business is financially stable, you can set your business up for long-term success. It's important to monitor your credit score regularly, take steps to improve it when necessary, and use credit responsibly to avoid damaging your credit profile. With patience, diligence, and responsible financial practices, you can build up your business credit quickly and pave the way for a successful future for your business.

Interested in finding out which bank is right for your business and can help you to quickly build business credit? View our business bank reviews here.

About The Author

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Bryan Huynh

Product Tester & Writer

Bryan Huynh, a committed Product Tester and Writer, ensures that you are well-informed, guiding you in discovering and comparing top-rated financial services, including personal loans, business loans, credit repair, and tax relief.